It’s no secret that the combination of steep gold prices and a new import duty is going to put a crimp in sales volume. Organised retailers are making room for a 13-15% fall. And yet, if you ask Crisil, you’ll still see revenues climb 20-25% because of what they’re able to charge. It’s enough to keep their credit in good shape even when the going gets a bit rough.
We put 70 of the country’s gold jewellers under the microscope – they make up a third of the organised sector’s book of business. Our call is for total volume to come in at 620-640 tonne. You could say it’s the leanest year for volumes we’ve had in ten years, if you put aside the pandemic year of FY21. Last time around, we saw an 8% pullback.
Policy push meets price shock
The government has its reasons. After 720 tonne of imports in 2026 and a USD 72 billion outflow, they have more than hiked the customs duty from 6% to 15%. It’s a way to shore up the rupee and the trade balance, but it doesn’t do any favours for the consumer.
Himank Sharma, our Director, puts it plainly: the new levy is a ‘significant deterrent’. Affordability was already an issue, and now it’s worse. He doesn’t think people will make up for it by buying more bars and coins for investment.
“Volume in the retail space is down 13-15% on the year to 620-640 tonne,” says Sharma. “A figure we haven’t seen in a decade.” But then he adds that on-year revenue will be strong, in the 20-25% range, thanks to higher realisations.
Price surge resets buying patterns
There’s been a 55% run-up in domestic gold over the last fiscal, no small feat. Global bullion is up, the rupee is soft against the dollar, and you have some geopolitical noise in the background. We are talking Rs 160,000 for 10 grams of 24 carat now, which is pushing buyers to look at something with less weight or carat.
We are seeing a move to 16-22 carat and studded items. In fact, over the last two years, while jewellery has taken a 25% hit, the bar and coin side of the house is up 50%. It’s a case of putting your money where it counts rather than on your wrist.
Realisations lift revenues, margins under pressure
At these levels, you can expect realisations to be 35-40% better than last year. That means better cash in the till, even if the unit sales are down. We’re also forecasting an Ebitda bump of some 20% because the price tag makes up for the softer off-take.
But there is some friction in the margins. To get people in the door, you’ll see more aggressive discounting and promotion. And since trading in bars and coins doesn’t add as much value, that will have an effect on the bottom line. Inventory is likely to sit a little longer too – 160-180 days instead of 150 – which means more in holding costs and bank debt.
Here are the immediate market effects Crisil highlights:
– Jewellery volumes fall despite topline growth
– Investment products rise but cannot offset decline
– Inventory and borrowing costs increase
– Credit profiles remain stable overall
Expansion, leverage, and credit outlook
That said, they aren’t hitting the brakes. The organised crowd is moving into Tier 2 and 3 cities, but they’re doing it through franchises so they don’t have to put up as much capital.
“Organised retailers are being cautious with franchise-led models to be more efficient with their capital and get a toehold in the smaller cities,” says Gaurav Arora, our Associate Director. “Debt will be up a third to stock the shelves in new and old stores, but the credit profile is fine. Revenues are up and so is the cash.”
By March 2027, we see the outside liabilities-to-adjusted net worth ratio at 1.5 times, up from 1.2 a year ago. Interest coverage will be a healthy 5-6 times, not quite the 7 we had before, but the cash flow is there to back it up.
What to track next
Still, when you sit in the boardroom, demand is the story. The policy to rein in imports is having an effect, and the 15% duty is changing the way people shop. For the retailer, it’s about a capital-light approach and being disciplined with inventory.
Key monitorables for investors and retailers are:
– Volatility in global and domestic gold prices
– Further changes in import duties or regulations
– Potential restrictions on gold purchases
– Shifts in consumer sentiment and mix
If the price of gold stays where it is and the average buyer is hard-pressed, you’ll see even more of a tilt to the unadorned metal. But with Ebitda set to be 20% higher and realisations in double digits, the well-run operators seem to have what it takes to get through a year of softening demand.
