Stronger cash generation, due to healthy revenue growth and adequate profitability, will keep credit profiles of organised gold jewellery retailers stable
New Delhi: Organised gold jewellery retailers are expected to clock 17-19% year-on-year revenue growth in 2024-25, driven by higher realisations following a surge in gold prices, while volume is likely to remain steady, a report said on Wednesday.
The revenue of organised gold jewellers is expected to rise 17-19% this fiscal, while volume growth is likely to stagnate due to rising gold prices, Crisil Ratings said in a report.
The report further stated that the working capital requirements of retailers might increase due to higher inventory levels resulting from the substantial rise in gold prices and new store additions. However, credit profiles should remain stable, it added.
The organised sector accounts for slightly more than a third of the market, with the highly fragmented unorganised sector making up the rest, it noted. Domestic gold price increased 15% during FY24 and reached Rs 67,000 per 10 grams at the end of March 2024, Crisil Ratings said.
Gold prices inched up to about Rs 73,000 in April 2024, as gold kept its shine as one of the safer investment options seen by various central banks across the world as well as end consumers amid geopolitical uncertainties.
“Apart from ramping up branding and marketing expenditure, retailers are likely to offer higher discounts to buyers even as they continue to expand product designs and offerings in a bid to attract customers amidst higher gold prices. We expect a shift to gold jewellery of lower carat and continued promotion of the gold exchange programme to support volume,” Crisil Ratings Director Aditya Jhaver said.
As a result, the share of gold exchange schemes is expected to rise from almost a third of the overall volume for most large retailers, the report added.
Moreover, it revealed that organised retailers will continue to gain market share at the expense of the unorganised ones, supported by changing consumer preferences and store expansion into tier I and II cities and beyond.
Crisil Ratings further said, supported by healthy balance sheets, store expansions (primarily by large jewellery retailers) have seen strong double-digit growth post-pandemic.
The pace of store addition may moderate to 10-12% in 2024-25, given the flattish volume, it added.
Meanwhile, it revealed that elevated gold prices will result in gold inventory being replenished at a higher cost this fiscal.
This, along with inventory required at new stores, will lead to higher working capital debt, however, the availability of bank funding to established gold jewellery retailers has improved in recent years, it stated.
This is expected to continue over the medium term, it added.
“Stronger cash generation, due to healthy revenue growth and adequate profitability, will keep credit profiles of organised gold jewellery retailers stable, despite an expected rise in working capital borrowings.
“Debt metrics will remain comfortable in fiscal 2025, moderating only slightly from the fiscal 2024 levels, with the total outside liabilities to tangible net worth and interest coverage ratios expected at 1.0-1.1 times and 8.0-8.2 times, respectively,” Crisil Ratings Director Himank Sharma said.
