The gold jewellery sector is witnessing a significant uptick in revenue, with CRISIL Ratings projecting an impressive growth rate of 22-25% for this fiscal year. This forecast marks a notable increase from the previously anticipated growth range of 17-19%. The substantial revision in growth expectations is largely attributed to the recent reduction in import duty, which has played a pivotal role in driving this surge.

Impact of Import Duty Reduction

The Union Budget's decision to slash the import duty on gold from 15% to 6% has had a profound impact on the jewellery market. This policy change has led to a decline in retail gold prices by approximately US$ 53.62-59.58 (Rs. 4,500-5,000) per 10 grams as of July 2024. The reduction in import duty has made gold more affordable, consequently enhancing demand and boosting revenue growth.

Revenue and Volume Trends

The lower retail gold prices, coupled with a significant reduction in import duty, are expected to drive a 3-5% increase in volumes this fiscal year. This is a marked improvement from the previously flat volume expectations. Despite gold prices being 17% higher than the average last year, the festive and marriage seasons are anticipated to propel higher sales in the second half of the year.

Profitability and Financial Metrics

While the surge in revenue is promising, operating profitability is projected to decline slightly, with a forecast range of 7.1-7.2%, a decrease of 40-60 basis points. This decline is primarily due to the potential for some inventory losses as a result of falling gold prices. However, these impacts are expected to be mitigated by reduced spending on marketing and promotional activities, thanks to improved demand.

Stable Credit Profiles

The credit profiles of gold jewellery retailers are anticipated to remain stable despite these changes. The organized sector, which accounts for over one-third of the jewellery market, is expected to maintain strong financial metrics. According to Mr. Himank Sharma, Director at CRISIL Ratings, the duty cuts come at a crucial time for retailers preparing for the festive season. Mr. Gaurav Arora, Associate Director at CRISIL Ratings, highlights that retailers will likely maintain robust financial metrics, with ratios such as total outside liabilities to tangible net worth (TOL/TNW) and interest coverage around 1.0 and 9 times, respectively.

Monitoring and Future Outlook

While the overall outlook for the gold jewellery sector is positive, it's crucial to remain vigilant for any sharp fluctuations in gold prices, further regulatory changes, or shifts in consumer sentiment. These factors could influence future performance and require close monitoring.

For further updates on similar issues and investment opportunities, explore the Best IPO to Apply Now - IPO List 2024, Latest IPO, Upcoming IPO, Recent IPO News, Live IPO GMP Today - Finance Saathi and stay informed with the Top News Headlines - Share Market News, Latest IPO News, Business News, Economy News- Finance Saathi.

Join our Trading with CA Abhay Telegram Channel for stock market trading insights and the Finance Saathi Telegram Channel for regular updates on share markets and IPOs.

Start your stock market journey by opening a free demat account with Choice Broking FinX.