Duty hike to push gold jewellery volumes to decadal low, but credit profiles seen stable: Crisil Ratings

NEW DELHI: The Indian organised gold jewellery retail sector is set for a decadal-low in sales volume this fiscal as high gold prices and a sharp hike in customs duty curb demand, though credit profiles of retailers are expected to remain stable on higher realisations, according to a research report by Crisil Ratings.

Sales volume for the sector, comprising jewellery, coins and bars, is expected to decline 13-15% on-year this fiscal, after an 8% contraction last fiscal. The drop will push volumes to 620-640 tonne, the lowest level in a decade, excluding the Covid-impacted fiscal 2021, Crisil said.

The decline comes after the central government more than doubled customs duty on gold to 15% from 6%, aiming to reduce demand and curb imports amid sustained high prices. In fiscal 2026, India imported around 720 tonnes of gold, leading to a foreign currency outflow of about USD 72 billion. The duty hike is intended to lower the trade deficit and support the currency.

Despite the volume slump, the sector is poised for robust revenue growth of 20-25% on-year, driven by higher realisations. Domestic gold prices soared an unprecedented 55% last fiscal due to a rise in global prices amid geopolitical uncertainties and a depreciating rupee. At the current price of around Rs 160,000 per 10 gram for 24 carat gold, realisations will be 35-40% higher on-year this fiscal, Crisil said.

“The central government’s decision to more than double the customs duty on gold to 15% from 6% will be a significant deterrent to demand for gold jewellery,” said Himank Sharma, Director, Crisil Ratings. “While we see a notable shift towards gold bars and coins driven by investment demand, that is unlikely to fully offset the decline in overall demand.”

The surge in prices has hurt affordability, prompting a shift toward lightweight, lower-carat jewellery in the 16-22 carat range and studded jewellery. Investment demand has gained traction, with sales of jewellery falling about 25% over the past two fiscals while sales of gold bars and coins surged over 50%.

Higher gold prices will increase inventory holding costs and bank borrowings, with inventory days expected to rise to 160-180 days from 150 days last fiscal. Retailers may also pass on some inventory gains via deeper discounts and face higher promotional expenses, weighing on gross margins.

However, overall cash accruals and absolute EBITDA are expected to improve, supported by higher realisations. Crisil expects gold jewellery retailers to see a 20% on-year increase in absolute Ebitda this fiscal. This will partly cover higher inventory costs and support expansion plans.

Organised retailers are expanding cautiously through franchise-led models, improving capital efficiency and widening reach into Tier 2 and 3 cities, said Gaurav Arora, Associate Director, Crisil Ratings. While overall debt will increase by a third this fiscal to maintain higher inventory, credit profiles will remain stable, supported by improved revenues and healthy cash accruals.

The total outside liabilities-to-adjusted net worth ratio, despite increasing, will remain controlled at around 1.5 times as of March 31, 2027, versus 1.2 times a year earlier. Median interest coverage is seen moderating but staying healthy at 5-6 times this fiscal versus around 7 times last fiscal.

Crisil flagged that steep fluctuations in gold prices, further regulatory changes, potential government restrictions on gold purchases, and shifts in consumer sentiment will bear watching. (ANI)