As per a recent note on the Indian jewellery retail industry, ICRA has revised upwards its forecast of the YoY domestic jewellery consumption growth (in value terms) for FY2024 to 10-12 percent from 8-10 percent estimated earlier, primarily driven by the rise in gold prices. Jewellery consumption is estimated to have risen by more than 15 percent YoY in H1 FY2024, aided by stable demand during Akshaya Tritiya and higher gold prices. However, ICRA projects the growth rate to moderate to 6-8 percent in H2 FY2024 due to sustained tepid rural demand amid persistent inflation.
After remaining volatile between December 2022 and April 2023, gold prices were relatively stable in H1 FY2024, although up 14 percent compared with the average prices in H1 FY2023. The elevated price levels supported revenue expansion of most jewellery retailers in the face of muted volume growth. The recent tensions in the Middle East and the evolving global macro-economic environment could keep gold prices elevated in the near term. The spike in gold prices since early October 2023 and persistent inflationary headwinds remain key risks to demand.
According to Sujoy Saha, vice president and sector head, ICRA: “ICRA’s sample set of 14 large jewellers, which account for ~70% of the organised market, is projected to record a healthy revenue expansion of 15-18% YoY in FY2024 on the back of their planned retail expansions and a gradual shift in consumer preferences towards branded jewellers. The organised jewellery retailers are expected to outperform the industry over the medium term supported by tailwinds from accelerated formalisation of the industry.”
ICRA projects some moderation in FY2024 in the operating margins of organised players owing to the front-loaded operating costs for planned store additions and increased advertising expenditure in the face of rising competition. Nevertheless, the benefits of economies of scale are likely to support the operating margins, which are estimated to hover in the range of 7.5-8 percent over the near to medium term. Despite the projected increase in debt levels to fund the inventory for new stores, the debt protection metrics for the players in ICRA’s sample set are estimated to remain comfortable. The estimated interest coverage is forecast to remain healthy at more than 5.0 times over the medium term, albeit a moderation from 6.7 times in FY2023. However, the total outside liabilities to tangible net worth ratio is seen to improve to less than 1.4 times over the next 12-18 months, against 1.4 times in FY2023.
“The organised jewellers had recommenced their retail expansion in FY2023, after a brief hiatus in FY2021 and FY2022, with the store count of ICRA’s sample set estimated to have risen by more than 20 percent during the year. The momentum is likely to continue over the near to medium term with an estimated increase in store count by 18-20 percent YoY in FY2024, supporting their revenue growth,” Saha added.