The domestic gold jewellery consumption (in value terms) is expected to continue its momentum in the current fiscal with an estimated growth of 14-18 per cent YoY, stated a report by ICRA. This follows the sharp growth of around 18 per cent in FY2024, which was primarily driven by realisations even as volume growth was subdued. Per the report, a 900 bps cut in import duty in the Union Budget in July 2024 and the consequent correction in gold prices for a brief period led to some pre-buying of jewellery as well as bars and coins during Q2FY25, which is generally a seasonally weak quarter.
The consumption growth in the recent months was aided by improving consumer sentiments and festive-led demand even as gold prices were volatile. This, coupled with higher number of auspicious and wedding days, and favourable monsoons aiding better rural output, is likely to help jewellery demand growth in H2 FY2025, ICRA said.
In FY2024, revenue growth for organised jewellery had been supported by realisations with gold prices rising by around 14 per cent YoY. The same trend, per the report, is expected to continue this fiscal as well. So far in the current fiscal, the average gold price has risen by a sharp 25 per cent vis-à-vis FY2024 average price, despite occasional corrections – first, after the cut in customs duty in late July 2024 and then in November 2024, following the US elections and currency movements. The continuing uptick in the gold prices for the last seven quarters has been stimulated by the evolving global economic and geopolitical scenario, and rising investment demand for gold.
On the supply side, organised jewellers are expected to add 16-18 per cent to their existing retail network in FY2025. Most large jewellers are opting for the franchise model to expand into new markets given the twin benefits of low capital expenditure and knowledge of the local market with the franchisee-partner.
Sujoy Saha, Vice President and Sector Head – Corporate Ratings, ICRA, said, “ICRA’s sample set of 15 large retailers, which accounts for ~75 per cent of the organised market, is projected to record a healthy YoY expansion of 18-20 per cent in FY2025. Planned store additions with focus on Tier II & III cities, rising gold prices, shift in preferences towards branded jewellery and some likely pre-buying in Q4 FY2025 on account of higher number of auspicious days in Q1 FY2026 shall drive growth. The customs duty cut is also expected to disincentive unofficial imports, thus supporting the growth in organised trade.”
The industry’s operating margin in FY2025 is expected to contract by 50-70 bps from 7.2-7.4 per cent levels of FY2023 and FY2024. Nevertheless, ICRA stated, the debt protection metrics of the firm’s sample set is expected to remain comfortable, with interest cover projected to improve to 6.2-6.4 times in FY2025 from around 6 times in FY2024, driven by a rise in operating profit at an absolute level and a proportionately lower rise in interest cost due to the adoption of a more capital-efficient franchise route for store additions by the retailers. Most organised players have outlined expansion of their retail presence over the medium term; while this is likely to translate into market share gains, the margin could moderate due to front-loaded expenses, ICRA maintained.
“The projected moderation in the operating margin of ICRA’s sample set of companies YoY in FY2025 to 6.5-6.7 per cent is primarily on the back of one-time losses suffered due to customs duty cuts in Q2 and Q3, by large retailers that adopt formal hedging practices for gold purchases. Subsequently, ICRA expects their operating margin to normalise in FY2026,” Sujoy Saha added.