Jewellery consumption growth to moderate to 6-8% in FY25 on elevated gold prices, says ICRA

The domestic jewellery consumption growth (in terms of value) is expected to moderate to 6-8 per cent in FY2025. (Representational Image - Freepik)

The domestic jewellery consumption growth (in terms of value) is expected to moderate to 6-8 per cent in FY2025, stated a report by ICRA. The growth moderation, it added, will be on the back of sharp rise in gold prices in recent months and the consequent impact on consumer sentiments of postponing non-essential purchases, from the sharp expansion of around 18 per cent in FY2024.

After a muted volume growth of around 2 per cent and 4 per cent in FY2023 and FY2024 respectively, ICRA is forecasting a volume contraction in FY2025. Consumers meanwhile, it added, are expected to remain watchful of the price movements and adjust to the new price levels over two or three quarters. Further, the ICRA report stated that the share of recycled gold in the overall supply is expected to continue to increase and rise by 400-600 bps in FY2025, given the elevated gold prices.

Also ReadAC, ice-cream companies see record summer sales

Gold prices stabilised post Akshaya Tritiya in April 2023, before witnessing an upsurge since November 2023 amid the wedding and festive season. Gold jewellers reported a revenue growth in FY2024 despite muted volume growth, as gold prices rose by approximately 14 per cent in the fiscal year on a YoY basis. The current gold prices, meanwhile, are higher by around 19 per cent over the FY2024 average and remain exposed to the confluence of factors like the global macroeconomic environment, geo-political tensions, inflation, currency movements, etc.

Sujoy Saha, Vice President and Sector Head, ICRA, said, “The revenue growth of ICRA’s sample set of 15 large jewellers, which accounts for ~75 per cent of the organised market, is likely to moderate to mid-to-high single digits in FY2025 (compared to an estimated ~16 per cent expansion registered in FY2024), due to subdued consumer sentiments and high gold prices despite robust store expansion plans and structural tailwinds. Wedding and festive demand is likely to be relatively muted amidst a relatively lower number of auspicious days in FY2025.”

Per ICRA, the industry is estimated to post operating margin at around 7 per cent in FY2024 and at a range-bound of 7-8 per cent in FY2025 amidst rising competition. “Debt protection metrics are likely to improve, going forward, supported by steady accruals from operations and with an increasing trend in expansion through the asset-light franchise route by large retailers. The interest coverage is estimated to remain comfortable at over 7.0 times while the total outside liabilities to tangible net worth ratio is expected to improve to ~1.7 times in FY2025, against ~1.9 times in FY2024,” it added.

Furthermore, the report maintained that the store count of ICRA’s sample set of companies is estimated to have increased by around 21 per cent in FY24 after a 20 per cent rise in FY23, with large retailers on an aggressive store addition spree in the last couple of years. The trend is supported by customer preferences changing towards organised players. “The store additions are likely to continue in the near to medium term as well, although the players will remain watchful of consumer sentiments,” Sujoy Saha added.