The organised gold jewellery retail sector is expected to see sales volume decline 13-15 per cent this fiscal to 620-640 tonnes, marking a 10-year low according to Crisil Ratings report. This follows a 8 per cent decline in jewellery sales last fiscal, attributed to high gold prices and recent policy measures to curb imports. The sector comprises jewellery, coins and bars, with Himank Sharma from Crisil Ratings noting that the central government's decision to more than double customs duty on gold to 15 per cent from 6 per cent will be a significant deterrent to demand. As per Crisil Ratings, the volume decline will hit the lowest level in a decade, excluding the Covid-impacted fiscal 2021. The analysis, based on 70 organised gold jewellery retailers accounting for nearly one-third of the sector's revenues, shows this represents the weakest sales volume performance in a decade outside the pandemic-affected fiscal year.
Despite the expected volume decline, the sector is poised to achieve robust revenue growth of 20-25 per cent year-on-year, driven by higher realisations as per Crisil Ratings report. At the current price of ₹1,60,000 per 10 gram (24 carat), realisations will be 35-40 per cent higher year-on-year this fiscal, thereby improving cash accruals. Gold jewellery retailers are expected to see a 20 per cent increase in absolute EBITDA this fiscal, which will partly cover for the increase in inventory holding costs as inventory days may rise to 160-180 days from 150 days last fiscal. However, the uptick in realisations will yield inventory gains for retailers, some of which may be passed on to customers in the form of deeper discounts to incentivize volume sales. The report indicates that while retailers may offer deeper discounts and incur higher promotional expenses to boost sales volumes, absolute earnings before interest, taxes, depreciation and amortisation (EBITDA) are expected to rise around 20 per cent this fiscal. Gaurav Arora from Crisil Ratings noted that elevated gold prices will lead to increased inventory holding costs and higher bank borrowings, but growth in both revenues and cash accruals will offset higher reliance on debt, resulting in stable credit profiles.
In FY26, India imported 720 tonnes of gold leading to foreign currency outflow of $72 billion. The central government recently raised customs duty on gold to 15 per cent from 6 per cent to suppress imports amid sustained high gold prices and as a measure to reduce the trade deficit and support the currency. Domestic gold prices soared an unprecedented 55 per cent last fiscal due to a rise in global gold prices amid geopolitical uncertainties, as well as a depreciating Indian rupee against the USD. The hike effectively reversed the customs duty reduction announced in the Union Budget for 2024-25, when the government had lowered the import tax to 6 per cent to support the domestic gems and jewellery industry, reduce local prices and discourage smuggling. The move followed Prime Minister Narendra Modi's appeal for households to postpone gold purchases and cut discretionary foreign exchange spending to help the country cope with higher oil and fertiliser costs. India is the world's second-largest gold consumer after China, and imports most of its bullion requirements to meet demand from the jewellery sector.
The sharp rise in prices has hurt affordability, prompting consumers to shift towards lightweight and lower-carat jewellery in the 16-22 carat range, along with studded jewellery, as noted in the Crisil Ratings report. Investment demand has gained traction with jewellery purchases falling 25 per cent over the past two fiscals, while sales of gold bars and coins surged over 50 per cent in the same period. While there is a notable shift towards gold bars and coins driven by investment demand, this is unlikely to fully offset the decline in overall demand. The report indicates that organised retailers are expanding cautiously through franchise-led models, which is improving capital efficiency and widening their reach into Tier 2 and 3 cities. Despite higher cash accruals, overall debt will increase by a third this fiscal to maintain higher inventory levels for new and existing stores, with the total outside liabilities-to-adjusted net worth ratio expected to rise to around 1.5 times by March 2027 from 1.2 times a year earlier. The persistently high gold prices and recent hike in customs duty on gold are likely to dampen demand across segments, as noted by Crisil Ratings.
