Sustained high gold prices are likely to hike revenues of organised gold jewellery retailers by 16-18 per cent this fiscal, a report said on Thursday. However, volume growth will remain modest due to elevated prices this fiscal.
This comes after a stellar compound annual growth rate (CAGR) of 35 per cent logged during FY22 and FY23, mainly due to strong volume growth, driven by pent-up demand and increased consumer spending. Average realisations during the previous two fiscals increased at a CAGR of 5 per cent, Crisil Ratings said in a report.
“We expect a low single-digit volume growth for the organised players during FY24, given elevated gold prices. That said, organised players will continue to see modest market share gain, compared with unorganised players. While revenue will grow by 16-18 per cent on sustained high gold prices,” Crisil Ratings Senior Director Anuj Sethi said.
The organised sector accounts for slightly more than a third of the market, with the unorganised sector making up the rest.
The report said the operating margin is expected to moderate by up to 30 basis points to 7.8-8 per cent, led by increasing promotional and store-related expenses.
Still, the margin will remain above the pre-pandemic level of 6.8-7 per cent, it added.
Working capital debt requirement will continue to rise as jewellers keep expanding stores, though at a slower pace than in the past two fiscals.
Credit profile for the players will remain stable, Crisil Ratings said.
Domestic prices of gold increased by 10 per cent last fiscal, averaging Rs 52,700 per 10 grams and reaching Rs 60,000 by the end of March 2023.
The price further inched up to an all-time high of Rs 61,500 per 10 grams during May 2023, as gold kept its shine as one of the safest investment options amid an uncertain global economic outlook.
High demand during the marriage season in India and a gradual recovery in gold buying in China also contributed to the high prices, said the report.
An increase in penetration of goods and services tax (GST), mandatory hallmarking, rising disposable income, and diversification in consumer preference in terms of jewellery designs are nudging market share towards organised players, it stated.
According to the report, store expansion, which grew 25-30 per cent last fiscal after two consecutive fiscals of subdued growth, will see a mid-double-digit growth this fiscal.
This will lead to higher inventory requirements, leading to increased working capital debt, it added.
Gross bank credit to the sector had declined 3 per cent over the 12 months through March 2023 as players rationalised inventory across stores and generated healthy cash, it said.
“The marginal moderation in operating profitability, along with higher working capital borrowings and finance cost, will lead to a slight moderation in debt metrics this fiscal.
“Nonetheless, the credit profile of gold jewellery retailers will remain stable with total outside liabilities to tangible net worth ratio and interest coverage expected at 1-1.1 times and 8.2-8.4 times, respectively, compared with 1.2 times and 9.6 times, respectively, last fiscal,” Crisil Ratings Director Aditya Jhaver said.
However, sharp volatility in gold prices, changes in government regulations and import duties, as well as consumer sentiment, will need to be watched, the report added.
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