Organised gold jewellery retailers are expected to clock revenue growth of 17-19 per cent on-year in fiscal 2025, driven by higher realisations stemming from elevated gold prices, while volume will remain steady, stated a report by CRISIL Ratings.
In order to combat the moderation in demand amid rising gold prices, the report added, retailers are likely to step up marketing and promotional campaigns this fiscal. Hence, operating profitability may marginally moderate 20-40 basis points on-year to 7.7- 7.9 per cent.
Further, working capital requirements may rise, too, resulting from increased inventory due to a substantial rise in gold prices and new store additions. That said, per CRISIL, credit profiles should remain stable.
CRISIL Ratings analysed 54 gold jewellery retailers, accounting for approximately 32 per cent of the organised jewellery sector revenue, to come to these conclusions. For the record, the organised sector accounts for slightly more than a third of the market, with the highly fragmented unorganised sector making up the rest.
Domestic gold price increased by around 15 per cent during fiscal 2024 and reached approximately Rs 67,000 per 10 gm as on end of March 2024. It inched up to about Rs 73,000 during April 2024 as gold kept its shine as one of the safer investment options seen by various central banks across the world as well as end consumers amid geopolitical uncertainties.
“Apart from ramping up branding and marketing expenditure, retailers are likely to offer higher discounts to buyers even as they continue to expand product designs/offerings in a bid to attract customers amidst higher gold prices. We expect a shift to gold jewellery of lower carat and continued promotion of the gold exchange programme to support volume,” said Aditya Jhaver, Director, CRISIL Ratings.
As a result, the share of gold exchange schemes is expected to inch up from almost a third of the overall volume for most large retailers.
Moreover, according to the CRISIL report, organised retailers will continue to gain market share at the expense of the unorganised ones, supported by changing consumer preferences and store expansion into tier-I and -II cities and beyond. Supported by healthy balance sheets, store expansions (primarily by large jewellery retailers) have seen strong double-digit growth post-pandemic, CRISIL said. The pace of store addition may moderate to 10-12 per cent in fiscal 2025, given the flattish volume.
Elevated gold prices will result in gold inventory being replenished at a higher cost this fiscal. This, along with inventory required at new stores, will lead to higher working capital debt. The availability of bank funding to established gold jewellery retailers has improved in recent years, as reflected in the steady gross bank credit to the sector, which is expected to continue over the medium term.
“Stronger cash generation, due to healthy revenue growth and adequate profitability, will keep credit profiles of organised gold jewellery retailers stable, despite an expected rise in working capital borrowings. Debt metrics will remain comfortable in fiscal 2025, moderating only slightly from the fiscal 2024 levels, with the total outside liabilities to tangible net worth and interest coverage ratios expected at 1.0-1.1 times and 8.0-8.2 times, respectively,” said Himank Sharma, Director, CRISIL Ratings.
The key monitorable, per CRISIL, will be sharp volatility in gold prices, changes in government regulations and import duties on gold, as well as consumer sentiment.