Gold Jewellery Retailers in India to See Big Revenue Boost Thanks to Lower Import Duties
Organised gold jewellery retailers in India are set to experience a significant revenue increase of 22-25% this fiscal year. This surge is driven by a sharp reduction in import duties on gold, as announced in the July Budget, according to a report by CRISIL Ratings.
Impact of Reduced Import Duties
The reduction in import duties has come at a crucial time for the industry, especially as retailers prepare for the festive and marriage seasons. Himank Sharma, Director at CRISIL Ratings, noted, “The duty cuts to their decadal lows have come at an opportune time for the gold jewellery retailers as they start stocking for the festive and marriage seasons from the latter half of August.”
Store Expansions and Working Capital
Many retailers are planning significant store expansions, estimated at 12-14% of existing stores. Lower gold prices will reduce inventory costs, providing working capital relief. Despite a slight dip in profitability to 7.1-7.2%, retailers’ cash flows will improve due to higher revenues, enabling them to pursue these expansion plans.
Financial Metrics and Future Outlook
Gaurav Arora, Associate Director at CRISIL Ratings, added, “Gold jewellery retailers will maintain comfortable financial metrics this fiscal, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios remaining around 1.0 and 9 times, respectively.”
As the festive season approaches, gold prices remain around 17% higher than last year’s average, which is expected to sustain demand and further drive revenues in the second half of the fiscal year. However, potential volatility in gold prices, changes in government regulations, and shifts in consumer sentiment will need to be closely monitored.
Conclusion
The combination of reduced prices, increased demand, and improved working capital management is expected to keep the financial outlook for gold jewellery retailers positive, despite the slight dip in profitability. The reduced duty has caused retail gold prices to fall by Rs 4,500-5,000 per 10 grams, leading to increased demand for gold jewellery.
Doubts Revealed
Revenue -: Revenue is the money that a business makes from selling its products or services. For gold jewellery retailers, it means the money they earn from selling gold jewellery.
Import Duties -: Import duties are taxes that the government charges on goods brought into the country from abroad. Lower import duties mean that it costs less to bring gold into India.
Fiscal Year -: A fiscal year is a 12-month period that companies and governments use for financial reporting and budgeting. It doesn’t always start in January; in India, it starts on April 1st and ends on March 31st of the next year.
Organised Retailers -: Organised retailers are large, well-established businesses that follow certain rules and regulations. They usually have multiple stores and a formal way of doing business.
Working Capital -: Working capital is the money that a business uses for its day-to-day operations, like buying inventory and paying employees. Better management of working capital means the business can run more smoothly.
Inventory Costs -: Inventory costs are the expenses related to storing and managing the products that a business sells. For gold jewellery retailers, this means the cost of keeping gold jewellery in their stores.
Cash Flows -: Cash flows refer to the money that comes in and goes out of a business. Positive cash flow means the business has more money coming in than going out, which is good for its financial health.
Festive and Marriage Seasons -: In India, the festive and marriage seasons are times when people celebrate festivals and weddings. During these times, people often buy a lot of gold jewellery, which increases demand for it.
