After two consecutive years of decline, the revenue of gold jewelry retailers is poised to grow 12-14 percent on-year this fiscal, driven by stable gold prices and recovery in discretionary spending, including on wedding and festive jewelry.
The operating margin, though, will be restored to the pre-pandemic level of 6.5-7.0 percent with the moderation of 100-120 basis points given a stabilization of gold prices and limited scope for further cost optimization, Crisil said in a statement.
An analysis of 86 jewelry retailers rated by Crisil Ratings showed recovery in revenue, along with improved accrual, continued inventory rationalization and healthy capital structure will keep the credit outlook stable.
"This fiscal, revenue of organized jewelers is also set to benefit from lower import duty, and introduction of mandatory hallmarking, which will make them more competitive compared with unorganized players.
"Lockdowns in many states were localized and less stringent, and hence store closures were lower compared to the first wave. Besides, pent-up demand from weddings (55-60 percent of overall jewelry sales) and festivals in later quarters will help resurrect revenue, just as they did last fiscal," Anuj Sethi, Senior Director, CRISIL Ratings said.
A net reduction of 213 basis points in import duty to 10.75 percent this fiscal has also helped bring down domestic gold prices, making it more affordable for consumers.
"Despite a slight moderation in operating margin, debt metrics will continue to improve this fiscal, supported by higher accruals and prudent debt levels following rationalization of inventory last fiscal," officials said.