Organised gold jewellery retailers are projected to achieve a 17-19% revenue growth in fiscal year 2025, according to a report by CRISIL Ratings. This growth is attributed to higher realisations from elevated gold prices, while sales volume is expected to remain stable.
Retailers are anticipated to increase marketing and promotional efforts to counter moderate demand due to rising gold prices. Consequently, operating profitability may slightly decline by 20-40 basis points to 7.7-7.9%.
Working capital requirements are likely to increase because of higher inventory costs from the substantial rise in gold prices and the addition of new stores. However, credit profiles should remain stable, CRISIL noted.
CRISIL Ratings based these conclusions on an analysis of 54 gold jewellery retailers, representing about 32% of the organised sector’s revenue. The organised sector makes up just over a third of the market, with the rest being highly fragmented and unorganised.
During fiscal 2024, domestic gold prices rose by about 15%, reaching approximately Rs 67,000 per 10 grams by the end of March 2024, and further increased to around Rs 73,000 in April 2024. This rise is attributed to gold being perceived as a safe investment amidst global geopolitical uncertainties.
Retailers are expected to boost branding and marketing spending and offer higher discounts to attract customers despite higher gold prices. They will also expand product designs and offerings. A shift to lower-carat gold jewellery and continued promotion of gold exchange programs are expected to support sales volume, according to Aditya Jhaver, Director at CRISIL Ratings.
The report suggests that the share of gold exchange schemes will increase, representing nearly a third of the total volume for large retailers.
Organised retailers are likely to gain market share from unorganised ones due to changing consumer preferences and store expansions into tier-I and tier-II cities. Large jewellery retailers have experienced strong double-digit growth in store expansions post-pandemic. However, the pace of store additions may slow to 10-12% in fiscal 2025, given the flat volume growth.
Higher gold prices will lead to inventory being replenished at increased costs, along with the need for inventory at new stores, resulting in higher working capital debt. Established gold jewellery retailers have seen improved access to bank funding in recent years, and this trend is expected to continue.
“Stronger cash generation from healthy revenue growth and adequate profitability will keep credit profiles stable for organised gold jewellery retailers, despite an expected rise in working capital borrowings. Debt metrics will remain comfortable in fiscal 2025, with 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 at CRISIL Ratings.
CRISIL highlights that key factors to monitor will be significant volatility in gold prices, changes in government regulations, and import duties on gold, as well as consumer sentiment.