Gold jewellery retailers to see slower volume decline, credit profiles to remain resilient: Crisil

India's organised gold jewellery retailers are expected to see a slower decline in sales volumes this fiscal as demand stabilises, Crisil Ratings said on Thursday.

The ratings agency also said that the credit profiles of retailers are likely to remain resilient despite higher working capital requirements due to elevated gold prices

An analysis of 76 organised gold jewellery retailers, accounting for about 33% of industry revenues, showed that jewellery volumes are expected to contract 4-6% in the current fiscal, compared with an 8% decline last fiscal.

“Revenue growth, however, should remain robust at 21-23%, supported by gold prices averaging 25-27% higher than last fiscal,” the release said.

Gold prices have remained elevated following a 56% surge last fiscal, and an increase in import duty to 15% has further weighed on consumer affordability.

Domestic gold prices averaged ₹1,48,891 per 10 grams in the July-September quarter, up 45% from a year earlier amid depreciating rupee and the higher import duty.

However, slower price appreciation and a subsequent correction have provided some relief ahead of the festive and wedding season.

Early trends in the third quarter reported by a majority of organised retailers indicate improving footfalls and higher conversion rates, suggesting that demand conditions are stabilising.

Organised retailers are also expected to gain market share as consumers increasingly prefer established brands offering greater transparency.

"Demand indicators are pointing to stabilisation rather than a broad-based recovery. Consumers remain price-sensitive and are increasingly shifting towards lighter-weight and lower-carat jewellery to manage affordability," said Himank Sharma, Director, Crisil Ratings.

Margins are projected to fall 60-80 basis points from 9.3% last fiscal to 8.5-8.7% this fiscal.

Higher spending on promotions and customer engagement initiatives to sustain footfalls and conversions is also likely to weigh on profitability.

Elevated gold prices will increase inventory funding requirements and working capital borrowings.

"While elevated gold prices will increase inventory funding requirements, the sector's credit fundamentals remain well supported by healthy cash accruals, prudent inventory management and measured growth strategies," said Nishita Vora, Team Leader, Crisil Ratings.

As a result, credit profiles are expected to remain resilient despite higher working capital requirements, she said.