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Crisil Ratings in its latest report has said that revenues of organised gold jewellery retailers will increase 22-25% on-year this fiscal - a good 500-600 basis points (bps) more than the 17-19% expected earlier - following the sharp reduction in import duty announced in the full Union Budget. The incremental growth will be driven by higher volumes even as retail gold prices come down from their lifetime highs. The sudden price decline could lead to some inventory loss on existing stock, though its impact would be partially mitigated as improved demand limits spending on marketing and promotional campaigns. This will have the operating profitability moderating by 40-60 bps to 7.1-7.2%. 

The report said reduced inventory due to lower prices will bring working capital benefits despite the significant store additions planned. In the milieu, credit profiles will remain stable. A Crisil Ratings analysis of 58 gold jewellery retailers, which account for a third of the revenue of the organised jewellery sector, indicates as much. For the record, the organised sector accounts for slightly more than a third of the market, with the highly fragmented unorganised sector making up the rest. 

According to the report, with continuous gold price rise since Feb 2024, gold jewellery demand had remained tepid, and retailers’ revenues have been driven by higher realisations. However, the announcement of the duty cut from 15% to 6%, a whopping 9% decline, led to a fall in retail gold prices by Rs 4,500-5,000 per 10 gm in the fourth week of July 2024. This has resulted in better affordability for the purchasers and hence volumes may rise 3-5% this fiscal, on-year, for gold jewellery retailers, as compared to flattish volumes assumed earlier in May 2024. It also stated that gold prices remain higher than last year’s average by around 17% and are expected to remain firm as the festive and marriage seasons approach, driving H2 sales of jewellery retailers higher than the H1 of each fiscal. It further said while profitability will be lower, the cash flows of retailers will improve with higher revenues, allowing them to take up store expansion - seen at 12-14% of existing stores this fiscal. Still, working capital requirements will likely remain flattish as higher inventory requirements due to increased store counts will be partly offset by lower input prices.