Gold jewellery retailers’ sales to surge 22-25 pc in India after sharp duty cut

New Delhi, Sep 9 (IANS) After the sharp reduction in import duty announced in the Union Budget, the revenues of organised gold jewellery retailers will increase 22-25 per cent this fiscal (year-on-year) — a solid 500-600 basis points (bps) more than the 17-19 per cent expected earlier, a report showed on Monday.

The incremental growth will be driven by higher volumes even as retail gold prices come down from their lifetime highs, according to Crisil Ratings.

The sudden price decline could lead to some inventory loss on existing stock, though its impact would be partially mitigated as improved demand limits spending on marketing and promotional campaigns.

Operating profitability will moderate by 40-60 basis points (bps) to 7.1-7.2 per cent, the report noted.

Himank Sharma, Director, Crisil Ratings, said that duty cuts to their decadal lows have come at an opportune time for the gold jewellery retailers as they start stocking for the festive and marriage seasons from the latter half of August.

That said, reduced inventory due to lower prices will bring working capital benefits despite the significant store additions planned. In the milieu, credit profiles will remain stable, according to the analysis of 58 gold jewellery retailers, which account for a third of the revenue of the organised jewellery sector.

While profitability will be lower, the cash flows of retailers will improve with higher revenues, allowing them to take up store expansion – seen at 12-14 per cent of existing stores this fiscal.

Still, working capital requirements will likely remain flattish as higher inventory requirements due to increased store counts will be partly offset by lower input prices, the report mentioned.

Gaurav Arora, Associate Director, Crisil Ratings, said that gold jewellery retailers will maintain comfortable financial metrics this fiscal.

These will be moderately better than our earlier expectations, keeping credit profiles stable, he added.

–IANS

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