Gold jewellery consumption to grow 14-18% in FY25 in value terms: ICRA

The domestic gold jewellery consumption in value terms is expected to continue its growth momentum in the current financial year and is likely to witness an on-year rise of 14-18 per cent, a report said on Tuesday.

Rating agency ICRA in a report said in FY25, gold jewellery consumption growth is pegged at 14-18 per cent in value terms, led by favourable realisations. 

 

In 2023-24, gold jewellery consumption growth had witnessed a growth of 18 per cent in 2023-24, primarily driven by realisations even as volume growth was subdued.

According to the report, while gold prices were volatile, improving consumer sentiments and festive-led demand aided consumption growth in the recent months.

Moreover, a sharp 900 bps cut in import duty in the Union Budget in July 2024, and consequent correction in gold prices for a brief period led to some pre-buying of jewellery as well as bars and coins during the second quarter of FY25, which is generally a seasonally weak quarter, it said.

This, coupled with higher number of auspicious and wedding days, and favourable monsoons aiding better rural output, is likely to help jewellery demand growth in H2 FY25, it added.

"The organised market is projected to record a healthy YoY expansion of 18-20 per cent in FY25. Planned store additions with focus on tier II and III cities, rising gold prices, shift in preferences towards branded jewellery and some likely pre-buying in the fourth quarter of FY25 on account of higher number of auspicious days in the first quarter of FY26 shall drive growth.

"The customs duty cut is also expected to disincentive unofficial imports, thus supporting the growth in organised trade," ICRA Vice President and Sector Head - Corporate Ratings, Sujoy Saha said.

Revenue growth for organised jewellery in FY24 had been supported by realisations with gold prices rising by 14 per cent YoY, the report said, adding that the same trend is expected to continue this fiscal as well.

So far in the current fiscal, the average gold price has risen by a sharp 25 per cent. There were occasional corrections in prices, once after the cut in customs duty in late July 2024 and then in November 2024, following the US elections and currency movements.

The continuing uptick in the gold prices for the last seven quarters has been stimulated by the evolving global economic and geopolitical scenario, and rising investment demand for gold, it said.

On the supply side, organised jewellers are expected to add 16-18 per cent to their existing retail network in FY25, said the report.

Most large jewellers are opting for the franchise model to expand into new markets given the twin benefits of low capital expenditure and knowledge of the local market with the franchisee-partner, it stated.

ICRA estimates the industry operating margin in FY25 to contract by 50-70 bps from 7.2-7.4 per cent levels of FY23 and FY24.

Nevertheless, ICRA expects the debt protection metrics of its sample set to remain comfortable, with interest cover projected to improve to 6.2-6.4 times in FY25 from 6 times in FY24, driven by a rise in operating profit at an absolute level and a proportionately lower rise in interest cost due to the adoption of a more capital-efficient franchise route for store additions by the retailers.

Most organised players have outlined expansion of their retail presence over the medium-term, while this is likely to translate into market share gains, the margin could moderate due to front-loaded expenses, added the report.