As per a recent note on the Indian jewellery retail industry, Icra has revised upwards its forecast of the year-on-year (YoY) domestic jewellery consumption growth (in value terms) for FY2024 to ten to 12 per cent from eight to ten per cent estimated earlier, primarily driven by the rise in gold prices.
Jewellery consumption is estimated to have risen by more than 15 per cent YoY in H1 FY2024, aided by stable demand during Akshaya Tritiya and higher gold prices. However, Icra projects the growth rate to moderate to six to eight per cent 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 per cent 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 macroeconomic environment could keep gold prices elevated soon.
The rating agency added that the spike in gold prices since early October 2023 and persistent inflationary headwinds remain key risks to demand.
Sujoy Saha, Vice President and Sector Head, Icra said, “ICRA’s sample set of 14 large jewellers, which account for ~70 per cent of the organised market, is projected to record a healthy revenue expansion of 15 to 18 per cent YoY in FY2024 on the back of their planned retail expansions and a gradual shift in consumer preferences towards branded jewellers.”
Saha added that the organised jewellery retailers are expected to outperform the industry over the medium term supported by tailwinds from the accelerated formalisation of the industry.
It also projected 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% 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 to 18 months, against 1.4 times in FY2023.
He stated that 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 per cent during the year.
“The momentum will likely continue over the near to medium term with an estimated increase in store count by 18 to 20 per cent YoY in FY2024, supporting their revenue growth,” Saha added.
