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Rise in gold prices to restrain jewellery consumption growth to 6-8% in FY2025: ICRA

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Gold prices rose 14% in FY24 on a YoY basis, and the current prices are higher by 19% over the FY24 average

Bengaluru: Domestic jewellery consumption growth (in value terms) is expected to moderate to 6-8% in fiscal year (FY) 2025, amidst the rise in gold prices in recent months and the consequent impact on consumer sentiments of postponing non-essential purchases, from the sharp 18% expansion in FY24, as per a report by ICRA, an investment information and credit rating agency. 

After a muted volume growth of 2% and 4% in FY23 and FY24 respectively, the volume is expected to contract in FY25. Consumers are expected to remain watchful of the price movements and adjust to the new price levels over two or three quarters. 

“The revenue growth of ICRA’s sample set of 15 large jewellers, which accounts for 75% of the organised market, is likely to moderate to mid-to-high single digits in FY25, due to subdued consumer sentiments and high gold prices despite robust store expansion plans and structural tailwinds,” said Sujoy Saha, vice president, ICRA. 

“Wedding and festive demand is likely to be relatively muted amidst a relatively lower number of auspicious days in FY25,” he added.

Gold prices rose 14% in FY24 on a year-on-year (YoY) basis, which supported revenue growth for most jewellers, despite muted volume growth. The current gold prices are higher by 19% over the FY24 average and remain exposed to the confluence of factors like the global macro-economic environment, geo-political tensions, inflation and currency movements.

Given the elevated gold prices, the share of recycled gold in the overall supply might continue to increase and rise by 400-600 basis points in FY25.

The industry operating margin was at around 7% in FY24 and at a range-bound of 7-8% in FY25 amidst rising competition. Debt protection metrics are likely to improve, going forward, supported by steady accruals from operations and with an increasing trend in expansion through the asset-light franchise route by large retailers, report added. 

The interest coverage is estimated to remain at over 7.0 times while the total outside liabilities to tangible net worth ratio is expected to improve to 1.7 times in FY25, against 1.9 times in FY24.

“The store count of ICRA’s sample set of companies is estimated to have increased by 21% in FY24 after a 20% rise in FY23 as large retailers looked at aggressive store additions in the last couple of years to gain market share with customer preferences changing towards organised players. The store additions are likely to continue in the near to medium term as well, although the players will remain watchful of consumer sentiments,” Saha added.

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