Jewellery consumption, in terms of value, is projected to grow by 10-12 percent in the current financial year, mainly attributed to the increase in gold prices, as reported on Friday. The rating agency ICRA has revised its forecast for the year-on-year (YoY) domestic jewellery consumption growth (in value terms) in FY24 to 10-12 percent from the earlier estimates of 8-10 percent, primarily driven by the rise in gold prices.
The consumption of jewellery is estimated to have risen by more than 15 percent year-on-year in the first half of FY24. This growth can be attributed to stable demand during ‘Akshaya Tritiya,’ a festival regarded as auspicious for purchasing precious metals, coupled with elevated gold prices.
Nevertheless, Icra anticipates the growth rate to moderate to 6-8 percent in the latter half of this financial year, due to sustained tepid rural demand amid persistent inflation.
Following a period of volatility from December 2022 to April 2023, gold prices exhibited relative stability in the first half of FY24, marking a 14 percent increase compared to the average prices from the corresponding period in the previous year, as mentioned in the report.
The heightened price levels aided in the revenue expansion of the majority of jewellery retailers, despite subdued volume growth, according to the statement.
The current tensions in the Middle East and the evolving global macro-economic conditions may contribute to maintaining elevated gold prices in the short term.
The spike in gold prices since early October 2023 and persistent inflationary headwinds remain key risks to demand, it stated.
“Jewellers of the organised market is projected to record a healthy revenue expansion of 15-18 per cent YoY in FY24 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 Vice President and Sector Head Sujoy Saha said.
Icra has projected some moderation in FY24 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 per cent in 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 are estimated to remain comfortable.
“The organised jewellers had recommenced their retail expansion in FY23, after a brief hiatus in FY21 and FY22, with the store count estimated to have risen by more than 20 per cent 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 per cent YoY in FY24, supporting their revenue growth,” Saha added.
