CRISIL Ratings Analysis: Gold Jewellery Retailers Forecast 17-19% Revenue Growth in FY25

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Gold Jewellery Retailers Poised for Growth Despite Rising Gold Prices

Team Finance Saathi

24/May/2024

Key Points:

Gold jewellery retailers anticipate 17-19% revenue growth in FY25, driven by elevated gold prices.
Marketing campaigns and product expansions are planned to address moderated demand amidst rising gold prices.
Despite challenges, credit profiles are expected to remain stable, with improved bank funding availability for established retailers.

A recent CRISIL Ratings analysis of 54 gold jewellery retailers, representing 32% of the organized jewellery sector's revenue, reveals a positive outlook despite challenges posed by rising gold prices. The analysis projects a 17-19% on-year revenue growth for gold jewellery retailers in FY25, primarily driven by higher realizations from elevated gold prices.

Factors Driving Growth

Despite expectations of steady volume, retailers anticipate moderated demand due to rising gold prices. In response, they plan to ramp up marketing and promotional campaigns to attract customers. Additionally, there will be a focus on expanding product designs and offerings to cater to changing consumer preferences amidst higher gold prices.

Impact on Profitability and Working Capital

Operating profitability may see a slight decrease, ranging from 20 to 40 basis points, to 7.7-7.9%. This decrease is attributed to higher costs associated with replenishing gold inventory at elevated prices. Moreover, increased inventory and new store additions will lead to a rise in working capital requirements. However, despite these challenges, credit profiles are expected to remain stable.

Market Trends and Expansion Strategies

Organized retailers are positioned to gain market share from unorganized ones, driven by changing consumer preferences and store expansions into Tier 1 and 2 cities. Although the pace of store expansions may moderate to 10-12% in FY25, strong double-digit growth has been observed post-pandemic. This expansion, coupled with improved bank funding availability for established retailers, underscores the industry's growth potential.

Credit Profile Stability and Outlook

According to Director at CRISIL Ratings, Mr. Himank Sharma, stronger cash generation from healthy revenue growth and adequate profitability will stabilize credit profiles despite rising working capital borrowings. Debt metrics are anticipated to remain comfortable in FY25, with only slight moderation from fiscal 2024 levels.

Critical Factors to Monitor

In navigating the evolving landscape, stakeholders must monitor critical factors such as sharp volatility in gold prices, changes in government regulations, import duties on gold, and consumer sentiment. These factors will continue to shape the performance and outlook of the gold jewellery retail sector in the foreseeable future.

Despite the challenges posed by elevated gold prices, gold jewellery retailers remain optimistic about their growth prospects in FY25. With strategic marketing initiatives, product expansions, and prudent financial management, they aim to capitalize on the opportunities presented by changing market dynamics.

Also read : Indian Agrochemicals Industry Set for Robust 9% CAGR Growth, Export Markets Thriving

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