Budget Import Duty Cut Will Boost Gold Jewellery Retailers' Revenues: Report

Revenues of organised gold jewellery retailers are expected to surge by 22 to 25 per cent this fiscal year, driven by the sharp reduction in import duties on gold in the July Budget, according to a Crisil report.

A recent analysis by Crisil Ratings, which examined 58 gold jewellery retailers representing a third of the organised sector's revenues, indicates that the sector will benefit from improved working capital management.

Although many retailers plan significant store expansions--estimated at 12 to 14 per cent of existing stores--lower gold prices will reduce inventory costs, providing working capital relief.

The organised jewellery sector, which accounts for just over a third of the overall market, is poised for a stronger financial performance compared to its unorganised counterpart.

The steep reduction in import duty has come at a crucial time for the industry, as retailers prepare for the festive and marriage seasons. Following the price decline, volumes are expected to grow by 3-5 per cent this fiscal year, reversing earlier projections of stagnant demand.

Gold prices had been steadily rising since February 2024, which had subdued consumer demand and led to revenue growth driven solely by higher realisations rather than increased sales volumes.

Himank Sharma, Director at CRISIL Ratings, highlighted the timely impact of the duty cut and said, "The duty cuts to their decadal lows have come at an opportune time for the gold jewellery retailers as they start stocking for the festive and marriage seasons from the latter half of August."

He added, "However, the inventory losses on the existing stock due to the price cuts will be partially mitigated by the reduced spends on marketing and discounts, as demand revives. All said profitability will see a marginal dip on-year to 7.1 to 7.2 per cent."

Despite the pressure on profitability, retailers' cash flows will improve due to higher revenues, enabling them to pursue expansion plans. Store expansions, expected to increase by 12-14 per cent, will require higher inventory levels.

However, the lower input costs resulting from reduced gold prices will balance out the additional working capital requirements.

Gaurav Arora, Associate Director at Crisil Ratings, added, "Gold jewellery retailers will maintain comfortable financial metrics this fiscal, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios remaining around 1.0 and 9 times, respectively. These will be moderately better than our earlier expectations, keeping credit profiles stable."

As the festive season approaches, gold prices remain around 17 per cent higher than last year's average, which is expected to sustain demand and further drive revenues in the second half of the fiscal year.

However, potential volatility in gold prices, changes in government regulations, and shifts in consumer sentiment will need to be closely monitored.

The combination of reduced prices, increased demand, and improved working capital management is expected to keep the financial outlook for gold jewellery retailers positive, despite the slight dip in profitability.

The reduced duty has caused retail gold prices to fall by Rs 4,500 to 5,000 per ten grams, leading to increased demand for gold jewellery.

The growth projection, 500-600 basis points higher than earlier estimates of 17 to 19 per cent, is fuelled by higher volumes as more consumers are enticed by the lower prices. (ANI)