Revenue of organised gold jewellery retailers, which had spurted 36% last fiscal on a low base of the pandemic-marred fiscal 2021, will maintain the glimmer this fiscal with 23-25% growth as volume grows on pent-up demand and recovery in discretionary spending, and realisations inch up.

Next fiscal, however, growth will moderate to 8-12%¹, given the higher base of this fiscal and as slower growth in disposable incomes — in keeping with the economic outlook² — weighs on discretionary spending.

In this milieu, operating margin will decline 40-70 basis points on-year because of increased marketing and store-related expenses, and stabilise at the pre-pandemic level of 6.7-7.0% this fiscal and the next.

A Crisil Ratings study of 76 gold jewellery retailers, which account for ~33% of the Rs 3.5 lakh crore annual revenue of the organised sector, indicates as much. The credit outlook for these players is seen as stable.

For the record, the organised sector accounts for almost a third of the market, with the highly fragmented unorganised sector bringing up the rest.

Says Aditya Jhaver, Director, Crisil Ratings, “We expect organised jewellery retail sales volume to increase 16-18% on-year to 670-700 tonne this fiscal, crossing the pre-pandemic level of ~600 tonne, supported largely by wedding and festival demand, which accounts for 80-85% of gold jewellery sales. Realisation will also support the revenue growth with an expected on-year increase of 5-7%.”

With volumes rising, store expansion, which had moderated between fiscal 2021 and part of fiscal 2022, is also expected to gather pace. Increase in penetration of Goods and Services Tax (GST) and mandatory hallmarking will further aid volume growth and assist the organised players resulting in market share gains for them. As a result, retailers, are expected to enhance number of stores by 10-15% over the next two fiscals.

New store addition will necessitate increased inventory, and hence additional working capital debt. Increased availability of bank funding to established gold jewellery retailers is visible from improving gross bank credit³ to the sector, which is expected to continue over the medium term.

Says Himank Sharma, Director, Crisil Ratings, “Strong revenue growth and better operating leverage will help buttress the impact of higher interest outgo because of the increased debt. Total outside liabilities to tangible networth ratio and interest coverage will improve to 1.0 time and 9.80 times, respectively, this fiscal from the pre-pandemic 1.4 times and 6.3 times, respectively. The ratios are expected to remain comfortable in fiscal 2024 as well.”

That said, sharp volatility in gold prices, changes in government regulations and import duties, as well as consumer sentiment, will bear watching.

¹ Similar to revenue CAGR seen between fiscals 2018 and 2022.
² Please refer to Crisil view dated December 1, 2022, on the Indian economy https://www.crisil.com/en/home/our-analysis/reports/2022/12/crisil-insights-indian-economy-the-downward-nudge-to-growth.html
³ Gross bank credit to the gems and jewellery sector rose 9.5% on-year last fiscal and 5% in April-October 2022 (vis-à-vis April-October 2021)