Despite the anticipated decline in volumes, the sector is
poised to post robust revenue growth of 20-25% on-year, driven by higher
realisations. Elevated gold prices are likely to increase inventory holding
costs and bank borrowings. However, higher revenues and cash accruals are
expected to offset the increased reliance on debt, resulting in stable credit
profiles. The analysis is based on 70 gold jewellery retailers that account for
about a third of the organised sector’s revenues.
India imported around 720 tonnes of gold in FY2026,
resulting in a foreign exchange outflow of nearly $72 billion. “Amid sustained
high gold prices and as a measure to reduce the trade deficit and support the
currency, the Centre recently raised customs duty on gold. This aims to reduce
demand for the precious metal and curb its imports. Consequently, the sector is
expected to see its sales volume fall to the lowest level in a decade,
excluding the Covid-impacted fiscal 2021,” Crisil said in a statement.
While higher realisations are expected to generate
inventory gains for retailers, a part of these gains may be passed on to
customers through deeper discounts aimed at supporting volumes.
However, persistently high gold prices and the recent
increase in customs duty are likely to dampen demand across segments.
“The Centre’s decision to more than double the customs duty
on gold to 15% from 6% will significantly deter demand for gold jewellery.
While we are seeing a notable shift towards gold bars and coins driven by
investment demand, that is unlikely to fully offset the overall decline in
demand. As a result, volumes in the gold jewellery retail sector are expected
to decline 13-15% on-year to 620-640 tonnes this fiscal, a level not seen in
the past decade,” said Himank Sharma, Director at Crisil Ratings.
However, at the current price of around Rs 1,60,000 per 10
grams (24 carat), realisations are expected to be 35-40% higher on-year this
fiscal, supporting stronger cash accruals. “Even as gold bars and coins
generate lower value-added revenues, and higher promotional expenses and
discounts are incurred to support sales volumes, gold jewellery retailers are
expected to see a 20% on-year increase in absolute EBITDA this fiscal,” Crisil
said.
This is expected to partly offset the rise in inventory
holding costs, with inventory days likely to increase to 160-180 days from 150
days last fiscal, while also supporting retailers’ expansion plans.
Source:
https://www.deccanherald.com