Recently, CareEdge Ratings published their report, ‘Branded Jewellers’ FY25 Revenues Set to Grow 20%, Margins May Moderate!’ CareEdge Ratings expects the branded jewellery retailers to outperform the industry in terms of revenue growth in the medium term aided by expanding store network and shifting consumer preferences.
CareEdge Ratings’ sample of 8 large jewellery retailers, which account for ~50% of the organised jewellery retail industry by revenue, aggressively expanded their retail footprint in FY2024 with an estimated addition of around 260 stores (~22% of the store count as on March 31, 2023). CareEdge Ratings expects the jewellers to continue the store addition momentum over the medium term to capitalise on industry-wide tailwinds.
While revenue growth of jewellery retailers is expected to remain healthy, their profitability is projected to moderate in the near term due to front-loaded operating expenses on new stores, higher advertising to drive store footfalls and increased discounting.
The steep rise in gold prices in recent months could lead to a temporary liquidity squeeze from margin calls on gold metal loan funding. Nevertheless, the overall credit metrics of organised jewellers are likely to remain comfortable with projected median interest cover above 4.0 times and median Net TOL/TNW below 1.5 times in FY2025 for CareEdge Ratings’ sample.
Average gold prices rose by ~14% on a YoY basis in FY2024 with a steep uptick in price volatility in H2 FY24 owing to economic uncertainties fuelled by global geopolitical tensions and evolving macroeconomic scenario. The recent escalation of conflicts in the Middle East region coupled with speculations around the likelihood of a reversal in the interest rate cycle by central banks will likely keep gold prices on tenterhooks in the near term.
