Gold jewellery demand likely to fall this fiscal gold rates

 India's gold jewellery demand is likely to fall by 5 per cent to 550 tonnes this fiscal, mainly due to the hike in customs duty, according to a report.

Rating agency Crisil on Wednesday said the hike in customs duty on gold by 5 per cent to 12.5 per cent on June 30 is likely to result in flat revenue growth for gold jewellery retailers in the current financial year compared to the exceptional demand witnessed in the year-ago period.

Retailers will have to pass on the hike to customers, which will curtail demand and wean away discretionary buyers, it added.

According to the report, the customs duty hike is likely to lead to higher gold prices for end consumers and may curtail demand in terms of volume, which is likely to fall by 5 per cent this fiscal to 550 tonnes. In the year-ago period, the same stood at 580 tonnes.

After the pandemic-led disruptions abated in the first quarter of last fiscal, pent-up demand and an import duty cut of 5 per cent in February 2021, had triggered a sharp rebound in sales, which continued into the first quarter of this fiscal.

Though higher gold prices will compensate for the volume loss and ensure the industry's revenue remains flat compared to last year, operating margins would be impacted, the report said.

"With gold prices increasing due to the import duty hike, gold jewellery retailers will have to adopt innovative sales methods and launch promotional schemes to push sales.

"Inventory mix will see a shift towards lower-grammage ornaments to make products more affordable, while discounts could be offered on making charges. This will shave off operating margins by 50 basis points to 6.4-6.8 per cent this fiscal," Crisil Ratings Director Rahul Guha said.

Typically, as the festive season approaches, stores stock up on products and in the current fiscal ending March 2023, addition of new showrooms is expected to rise 10-12 per cent.

Together, this will increase retailers' working capital requirement by Rs 3,000-3,200 crore through the fiscal, which would mark a 35-40 per cent surge over the year-ago period, the report said.

"Gold jewellery retailers had reduced their leverage by limiting new store additions amid cautious funding stance by banks... Credit profiles will still be stable," Crisil Ratings Director Himank Sharma said.