With volume growing on pent-up demand and recovery in discretionary spending, revenue of organised gold jewellery retailers will rise to 23-25 per cent this fiscal, according to a CRISIL report. The revenue had jumped 36 per cent last fiscal on a low base of the pandemic-hit fiscal 2021. Next fiscal, the report said, the growth will moderate to 8-12 per cent, given the higher base of this fiscal and due to the slower growth in disposable incomes courtesy the economic outlook. “We expect organised jewellery retail sales volume to increase 16-18 per cent on-year to 670-700 tonne this fiscal, crossing the pre-pandemic level of ~600 tonne, supported largely by wedding and festival demand. Realisation will also support the revenue growth with an expected on-year increase of 5-7 per cent,” said Aditya Jhaver, Director, CRISIL Ratings.
In line with this, operating margin will decline 40-70 basis points on-year because of the increased marketing and store-related expenses and will stabilise at the pre-pandemic level of 6.7-7.0 per cent this fiscal and the next. The findings are based on a CRISIL Ratings study of 76 gold jewellery retailers that accounts for ~33 per cent of the annual revenue of the organised sector of Rs 3.5 lakh crore. Even with the highly fragmented unorganised sector, the organised sector accounts for almost a third of the market.
What will facilitate the growth?
The rising volume, store expansion, which had moderated between fiscal 2021 and part of fiscal 2022, is expected to gather pace, said the report. Further, increase in penetration of Goods and Services Tax (GST) and mandatory hallmarking will aid volume growth and will help organised players grow. This entails for the retailers to enhance the number of stores by 10-15 per cent over the next two fiscals and this will necessitate increased inventory, and hence additional working capital debt. Increased availability of bank funding to established gold jewellery retailers is visible from improving gross bank credit to the sector, which is expected to continue over the medium term, the report added.
“Total outside liabilities to tangible net worth ratio and interest coverage will improve to 1.0 time and 9.80 times, respectively, this fiscal from the pre-pandemic 1.4 times and 6.3 times, respectively. The ratios are expected to remain comfortable in fiscal 2024 as well,” said Himank Sharma, Director, CRISIL