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Synopsis • The domestic jewellery industry is expected to record muted volume growth in FY25 due to a steep rise in gold prices in the recent months, the evolving macroeconomic scenario and the likelihood of high volatility in prices. • The branded jewellery retailers are, however, expected to record healthy revenue growth of 20-22% on a YoY basis in FY2025, with projected volume growth of around 5% YoY, led by aggressive store additions, changing consumer preferences, continued rise in gold prices and steady wedding and festive demand due to the strong cultural affinity of Indians to gold.

• CareEdge Ratings’ sample of 8 large jewellery retailers, which account for ~50% of the organised jewellery retail industry by revenue, aggressively expanded their retail footprint in FY2024 with an estimated addition of around 260 stores (~22% of the store count as on March 31, 2023). CareEdge Ratings expects the jewellers to continue the store addition momentum over the medium term to capitalise on industry-wide tailwinds.

• While revenue growth of jewellery retailers is expected to remain healthy, their profitability is projected to moderate in the near term due to front-loaded operating expenses on new stores, higher advertising to drive store footfalls and increased discounting. The steep rise in gold prices in recent months could lead to a temporary liquidity squeeze from margin calls on gold metal loan funding. Nevertheless, the overall credit metrics of organised jewellers are likely to remain comfortable with projected median interest cover above 4.0 times and median Net TOL/TNW below 1.5 times in FY2025 for CareEdge Ratings’ sample.

• Average gold prices rose by ~14% on a YoY basis in FY2024 with a steep uptick in price volatility in H2 FY24 owing to economic uncertainties fuelled by global geopolitical tensions and evolving macroeconomic scenario. The recent escalation of conflicts in the Middle East region coupled with speculations around the likelihood of a reversal in the interest rate cycle by central banks will likely keep gold prices on tenterhooks in the near term.

Accelerated store additions by branded jewellers amid changing consumer preferences

After a brief hiatus in FY2021 and FY2022, wherein the operations were impacted by the pandemic-induced uncertainties, most jewellery retailers recommenced their store addition plans in FY2023 and continued it in FY2024 with an addition of around 260 stores by the top six listed jewellery retailers (~22% of their combined store count as on March 31, 2023). CareEdge Ratings expects the organised jewellers to continue expanding their retail network by more than 20% YoY in FY25 to capitalise on the industry-wide tailwinds regarding market share gains and shifting consumer preferences towards branded jewellery retailers.

Impact of aggressive store additions on the financial performance of jewellers: Despite the expectations of high volatility in gold prices translating into muted same-store-volume growth for the industry, the branded jewellers are expected to record a healthy revenue growth owing to contribution from new stores and sustained rise in gold prices. However, the profitability of jewellers is likely to be impacted by front-loaded operating expenses on new stores till the breakeven period (generally 8-12 months), higher advertising expenditure to drive store footfalls and increased discounting to counter rising competition from other jewellers. This is likely to be partly mitigated by inventory gains in the current year and benefits accruing from economies of scale.

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