Budget import duty cut will boost gold jewellery retailers' revenues by 22-25% this fiscal: CRISIL report

A CRISIL Rating analysis of 58 gold jewellery retailers, representing one-third of the organized jewellery sector's revenue, indicates that revenues are set to grow by 22-25% this fiscal 500-600 basis points higher than the previously expected 17-19%. The surge in growth follows the sharp reduction in import duty announced in the Union Budget, with higher volumes driving the increase as retail gold prices fall from their record highs. While the price decline may lead to some inventory losses, the impact will be mitigated by reduced spending on marketing and promotional activities due to improved demand. Operating profitability is projected to decline by 40-60 basis points to 7.1-7.2%, and working capital will benefit from lower inventory costs despite planned store expansions. The credit profiles of retailers are expected to remain stable, with the organized sector currently accounting for over one-third of the jewellery market.

Since February 2024, rising gold prices have subdued demand, with retailers' revenues supported by higher realizations. However, the recent import duty cut from 15% to 6% has reduced retail gold prices by US$ 53.62-59.58 (Rs. 4,500-5,000) per 10 gm as of July 2024, improving affordability and potentially driving a 3-5% increase in volumes this fiscal compared to the flat volumes anticipated earlier. Despite gold prices being 17% higher than last year’s average, the festive and marriage seasons are expected to drive higher H2 sales. According to the Director at CRISIL Ratings, Mr. Himank Sharma, the duty cuts are timely for retailers stocking up for the festive season. However, profitability is expected to dip slightly to 7.1-7.2%. Associate Director at CRISIL Ratings, Mr. Gaurav Arora, added that gold jewellery retailers would likely maintain strong financial metrics, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios around 1.0 and 9 times, respectively. However, any sharp gold price volatility, further regulatory changes, or shifts in consumer sentiment will need close monitoring.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.