Sector Watch: Gold jewellery firms may struggle in Q4 but poised for strong FY22, FY23 growth

The Indian gold jewellery sector is likely to take a hit in the current quarter due to the ongoing third wave of the Covid-19 pandemic across major cities, but robust demand in the key festive season (October-December) as also in the preceding months is likely to help the industry clock 17% growth in 2021-22, according to ratings firm ICRA.

This would mean a resurgence in the industry after two straight years of decline.

ICRA estimates that jewellery retailers posted around 15% growth during the quarter ended Dec. 31 compared with the year earlier and that consumption registered was the highest quarterly number to date.

However, it anticipates the industry will see around 15% year-on-year decline in business in the current quarter and 45% decrease on a sequential basis due to restrictions on store operations.

On the flip side, the 30% growth in the first nine months of the current fiscal will help it post healthy annual growth.

ICRA said it expects strong consumption in Q1 FY2023 (April-June) with the wedding and festive purchases and continued affinity towards gold purchases to support growth of around 12% in FY2023.

Organised players are expected to witness higher-than-industry growth, driven by renewed store expansion being undertaken by large retailers with jewellery demand breaching pre-pandemic levels. Total store count for the ICRA sample set is expected to increase by around 10% in the next 12-18 months.

ICRA expects its sample of 14 major organised retailers to have reported a healthy year-on-year revenue growth of more than 15% in Q3 FY2022. For FY2022, revenue for ICRA’s sample set is expected to grow by a strong 25%, after a marginal decline witnessed in FY2021.

The ratings firm said that operating profitability levels in FY2020 and FY2021 were healthy thanks to inventory gains with operating profit margin of about 8.5%. But operating margin in FY2022 are likely to contract due to lower contribution levels and increase in operating costs.

Nevertheless, the margin is expected to be a tad higher at 7% compared to the average levels of around 6.5% seen over the last decade.

The research unit of the ratings firm added that given the favourable demand and continued store expansions, revenue for organised players is likely to grow about 17% in FY2023, much higher than the industry average. With steady prices and growing scale, operating margin is expected to stabilise around 7.5%.