Revenue of gold jewellery retailers seen up 12 to 14 pc: Crisil

Mumbai (Maharashtra) [India]: After two consecutive years of decline, the revenue of gold jewellery retailers is poised to grow 12 to 14 per cent on-year this fiscal, according to Crisil Ratings.
This will be driven by stable gold prices and recovery in discretionary spending, including on wedding and festive jewellery.
Operating margin though will be restored to the pre-pandemic level of 6.5 to 7 per cent with the moderation of 100 to 120 basis points (bps), given a stabilisation of gold prices and limited scope for further cost optimisation.

Recovery in revenue along with improved accrual, continued inventory rationalisation and healthy capital structure will keep the credit outlook stable, shows an analysis of 86 jewellery retailers rated by Crisil Ratings.

The growth this fiscal will come on a low base as revenue had contracted 3 and 8 per cent respectively in fiscals 2020 and 2021.
Demand had taken a knock after import duty was hiked by 250 bps to 12.5 per cent in the Union Budget presented in July 2019. In fiscal 2021, pandemic-induced lockdowns and store closures impacted revenue.

Anuj Sethi, Senior Director at Crisil Ratings, said revenue of organised jewellers this fiscal is also set to benefit from lower import duty, and introduction of mandatory hallmarking from June 16 which will make them more competitive compared with unorganised players.
Also, while the second wave did curb operations in the first quarter, lockdowns in many states were localised and less stringent, and hence store closures were lower compared to the first wave.
“Besides, pent-up demand from weddings (55 to 60 per cent of overall jewellery sales) and festivals in later quarters will help resurrect revenue, just as they did last fiscal,” said Sethi.

Additionally, stabilisation of gold prices will also support demand this fiscal as consumers tend to hold back purchases during times of price volatility.
With economic activity picking up gradually, income levels improving and an increasing number of people getting vaccinated, gold prices have softened from the peak seen in the previous fiscal and stabilised at around Rs 48,000 per 10 gram of 24 carat gold over the last few months.

A net reduction of 213 bps in import duty to 10.75 per cent this fiscal has also helped bring down domestic gold prices, making it more affordable for consumers, said Crisil.

The operating margin, however, is set to moderate and settle at pre-pandemic level of 6.5 to 7 per cent as the benefit of inventory gains is unlikely to accrue owing to softening of gold prices and limited scope for cost optimisation.
Last fiscal, the operating margin had improved by 100 bps to 7.5 to 8 per cent despite lower revenue growth as jewellers made gains on low-priced inventory following 30 per cent surge in gold prices.
This coupled with cost optimisation measures such as the pruning of employee costs, lower promotions and renegotiations of rentals helped operating margin, said Crisil.

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