Revenue of gold jewellery retailers is expected to rise 12-15% next fiscal, backed by sustained high prices of gold and steady demand. That will follow strong revenue growth of 20-22% expected this fiscal, albeit on a lower base of the Covid-19 pandemic-impacted last fiscal.
 

Operating margins should improve 50-70 basis points (bps) on-year to 7.3-7.5% in fiscal 2023, because of elevated gold prices and improved operating leverage. Consequently, operating profits will rise 12-15% next fiscal, resulting in better debt metrics. That will keep the credit outlook for organised jewellers ‘stable’ next fiscal, despite higher capital spending and inventory.
 

This is as per an analysis of 82 of them rated by Crisil Ratings, which accounts for ~40% of the sector's revenue. Jewellery demand is seen steady next fiscal, with volume growing 8-10% to pre-pandemic levels of 600-650 tonne, owing to normalising operations, store additions, and gold prices sustaining above Rs 50,000 per 10 gm.

Says Anuj Sethi, Senior Director, Crisil Ratings, "Revenue growth would have been even higher next fiscal but for the Russia-Ukraine conflict, which have cranked up gold prices to ~Rs 55,000 per 10 gm. While prices have corrected a touch, continuing volatility will constrain volume growth in the first quarter of next fiscal, ahead of the wedding and festive seasons, due to partial deferral of purchases."

While operating profitability is expected to moderate to 6.5-7% this fiscal due to limited inventory gains, and more expenditure on rentals, employees and advertisement, higher operating leverage will help restore margins to the prepandemic levels of 7.3-7.5% next fiscal.

Lenders have been extending credit this fiscal to jewellery retailers with good governance practices and adequate debt metrics, which has enabled them to expand at a moderate pace. This is also reflected in gross bank credit to the gems and jewellery sector improving by 6% over the 12 months through January 2022. With demand stabilising, business expansion will gather pace next fiscal to the pre-pandemic levels of Rs 200-250¹ crore per annum.

Says Aditya Jhaver, Director, Crisil Ratings, "Slower-to-moderate expansion in the recent past had enabled a gradual correction in the debt metrics of Crisil-rated gold jewellers. We expect their total outside liability to tangible net worth ratio to improve further to ~0.8 time next fiscal against 0.9 time this fiscal (~1-1.1 times in fiscal 2021), despite higher outgo for expansion and inventory, because of better profitability. Hence, the credit outlook for gold jewellers will remain largely stable."

Any fresh waves of the pandemic, and change in consumer spending on jewellery and import duty - because of higher imports widening India's current account deficit - will bear watching.

¹ Includes expenditure on furniture and fitments but excludes spends on inventory