Organised gold jewellery retailers are expected to see their revenues increase 22-25% on-year this fiscal, up 500-600 basis points (bps) following the sharp reduction in import duty announced in the Union Budget, said CRISIL Ratings in a study.

Earlier revenue was projected to increase at about 17-19%. The incremental growth will be driven by higher volumes even as retail gold prices have gone down from their lifetime highs, the rating agency said.

Inventory loss

“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%,” CRISIL said.

“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,” it added.

Himank Sharma, Director, CRISIL Ratings said, “The 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.”

“However, the inventory losses on the existing stock due to the price cuts will be partially mitigated by the reduced spends on marketing and discounts, as demand revives. All said, profitability will see a marginal dip on-year to 7.1-7.2%,” he added.

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% of existing stores this fiscal, the rating agency said.