Mumbai: According to a survey conducted by Crisil, revenue for organised gold jewellery retailers is expected to increase by 16-18% in the current financial year, ensuring the maintenance of their creditworthiness.
Despite volatile and elevated gold prices, sustained high prices will brighten the revenue outlook for organised gold jewellery retailers. This comes on the back of a compound annual growth rate (CAGR) of around 35% achieved during the fiscal year 2022 and fiscal year 2023.
The growth was mainly driven by pent-up demand and increased consumer spending, leading to strong volume growth. Average realisations also witnessed a CAGR of around 5% during the same period.
The operating margin is projected to moderate by up to 30 basis points to 7.8-8.0% due to increasing promotional and store-related expenses. However, the margin will remain above the pre-pandemic level of 6.8-7.0%.
While the working capital debt requirement will continue to rise as jewellers expand their stores, the pace of expansion will be slower compared to the past two fiscal years. Overall, the credit profile of the players is expected to remain stable.
Crisil Ratings conducted a study involving 46 gold jewellery retailers, which represent approximately 25% of the revenue of the organised jewellery sector. The study indicates that the creditworthiness of the players will remain intact.
The organised sector accounts for slightly more than one-third of the market, with the highly fragmented unorganised sector constituting the rest. During the last fiscal year, the domestic price of gold witnessed an around 10% increase, averaging Rs 52,700 per 10 grams (24-carat) and reaching Rs 60,000 per 10 grams by the end of March 2023. In May 2023, the price further rose to an all-time high of around Rs 61,500 per 10 grams.
Gold maintained its allure as a safe investment option 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.
Anuj Sethi, Senior Director at Crisil Ratings, commented, “Given elevated gold prices, we expect low single-digit volume growth for the organised players during fiscal year 2024. However, organised players will continue to gain modest market share compared to unorganised players.”
The increase in the penetration of the Goods and Services Tax (GST), mandatory hallmarking, rising disposable income, and diversification in consumer preferences for jewellery designs are driving market share towards organised players. This is evident from the healthy double-digit volume increase witnessed by gold jewellery retailers rated by Crisil Ratings during the last fiscal year.
Store expansion, which experienced subdued growth in the previous two fiscal years, saw a growth of 25-30% last year and is expected to achieve mid double-digit growth this fiscal year.
This expansion will lead to higher inventory requirements and increased working capital debt. Gross bank credit to the sector declined by 3% over the 12 months through March 2023 as players rationalised inventory across stores and generated healthy cash flow.
Aditya Jhaver, Director at Crisil Ratings, stated, “The slight moderation in operating profitability, along with higher working capital borrowings and finance costs, will lead to a slight moderation in debt metrics this fiscal year. Nevertheless, the credit profile of gold jewellery retailers will remain stable, with total outside liabilities to tangible net worth ratio and interest coverage expected to be around 1.0-1.1 times and 8.2-8.4 times, respectively.”