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    Gold jewellery demand in India to grow 11% this fiscal: ICRA

    Synopsis

    Within the jewellery retail industry, revenues of organised retailers are likely to grow at a higher pace by 14%, backed by their aggressive store expansion plans and a gradual shift from the unorganised segment towards the organised one.

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    The jewellery retail sector is estimated to have grown at a robust 26% in FY2022, driven by the strong demand recovery witnessed post the adverse impact of the second wave faced in the first quarter of the fiscal.
    ICRA Ratings estimates the gold jewellery demand in India to grow at a steady 11% during FY2023. As per the recent research report published by ICRA, this comes on the back of a strong 25% growth witnessed by the industry in FY2022.

    Within the jewellery retail industry, revenues of organised retailers are likely to grow at a higher pace by 14%, backed by their aggressive store expansion plans and a gradual shift from the unorganised segment towards the organised one.

    Elaborating on the outlook for the jewellery retail sector, Mr Jayanta Roy, senior vice president and group head, ICRA said, “Demand during the current Akshaya Tritya season is expected to be strong, leading to a healthy demand growth of around 45% Y-o-Y in Q1 FY2023.Growth for FY2023 is expected at 11% for the industry, despite a high base witnessed in FY2022, driven by the anticipated steady wedding and festive purchases during the current fiscal, given Indian consumer’s strong cultural affinity towards gold. Interestingly, at the forecasted level, gold jewellery demand in FY2023 would be almost 40% higher than the pre-Covid levels seen in FY2020.”

    The jewellery retail sector is estimated to have grown at a robust 26% in FY2022, driven by the strong demand recovery witnessed post the adverse impact of the second wave faced in the first quarter of the fiscal. This was despite a sharp increase in gold prices, which resulted in some postponement of purchases for weddings and other occasions towards the end of the fiscal. Consumption in FY2022 was spurred by a pent-up demand in the second quarter and healthy festive and wedding demand driving record sales in the third quarter. Further, gold jewellery demand in the fourth quarter too was better than expected, with the limited impact of the third wave on store operations.

    Upon considering a sample of 14 major organised retailers, the estimated revenue growth for these organised players was robust at ~27% in FY2022, post a marginal decline witnessed in FY2021. For FY2023, revenues for ICRA’s sample set are expected to grow at a steady pace of 14%, driven primarily by anticipated store expansions. Post the healthy levels seen in FY2020 and FY2021 on the back of inventory gains, operating profitability in FY2022 are estimated to have witnessed some moderation because of lower contribution levels and an increase in operating costs. Nevertheless, margins of organised retailers were higher than the average levels seen over the last decade, and are expected to stabilise at around 7-7.5% over the medium term.

    With jewellery demand witnessing a healthy growth, organised players had re-initiated their expansion plans in FY2022. The pace of addition is likely to gain further momentum in the coming quarters, with the total store count for ICRA sample set likely to increase by more than 10% in the next 12 months. Despite the expected increase in debt levels to fuel store expansions, the debt protection metrics for the larger market players is expected to remain comfortable, as reflected by an interest coverage of 5.4 times expected in FY2023 (as against an estimated 5.0 times in FY2022). Similarly, Total Outside Liabilities to Tangible Networth is expected to be at a comfortable 1.3 times expected in FY2023 (as against an estimated 1.4 times in FY2022).

    Commenting on the trend, Mr. Kaushik Das, Vice President and Co-Group Head, ICRA said, “Revenue growth at around 14% for the large organised players is likely to outpace the industry growth in FY2023, backed by an expected increase in store count by more than 10% in the next 12 months and the continuing shift towards organised players witnessed in the recent past. Supported by growing share of studded jewellery and better operating leverage, the operating margins for organised players are likely to stabilise at around 7.5% in FY2023. While the retailers’ debt levels have increased in the recent quarters to fund store expansions and associated inventory requirements, steady growth in earnings would support the coverage metrics and the capitalisation levels, which are likely to remain at comfortable levels.”


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