After the CRISIL report projecting a 22-25% revenue boost for retailers due to lower gold import duties in the July budget, the shares of Tribhovandas Bhimji Zaveri (TBZ) surged 18% to Rs 275.45, and PC Jewellers rose 5% to Rs 129.30, hitting new 52-week highs on the BSE.
On the same lines, the shares of Senco Gold surged 5% to a high of Rs 1,252.10 while Goldiam International shares rose nearly 10% to Rs 362.85.
In today’s session at BSE, the shares of RBZ Jewellers also rose 2% to hit its upper circuit at Rs 150.65.
CRISIL Forecasts Price Drop in Gold as Good for the Organized Jewellery Sector
As per the CRISIL Ratings analysis which includes 58 gold jewellery retailers, the industry is believed to benefit from better working capital management. This report covers a third of the organised sector’s revenues.
Despite plans for store expansions (12-14% increase), lower gold prices are expected to reduce inventory costs, easing financial pressure.
It is believed that the organized sector which comprises of one third of the market is set to be better financially performing than the unorganized sector. In addition to this, the recent reductions also came ahead of the festive as well as wedding seasons which is very crucial time. Reversing the earlier stagnant demand projects, the decline in gold prices is expected to cause the growth of sales volumes by 3-5% this fiscal year.
As per the Director at CRISIL Ratings, Himank Sharma, “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”.
He added that “However, the inventory losses on the existing stock due to the price cuts will be partially mitigated by the reduced spends on marketing and discounts, as demand revives. All said, profitability will see a marginal dip on-year to 7.1-7.2 per cent”.
Though there shall be a pressure on profitability, but it shall be the improved revenues that shall enable them to expand in future. Store expansions, expected to increase by 12-14%, will require higher inventory levels.
Positive Picture of Gold Jewellery Market Amid Demand Surge Driven by Price Reductions
Driven by factors like of lower prices, rising demand, and better working capital management, the financial outlook of gold jewellery remains positive despite the slight dip in profitability.
The retail price reduction of almost ?4,500-5,000 per 10 grams has further increased the demand for the gold jewellery.
This surge in demand has raised growth projections by 500-600 basis points, surpassing earlier estimates of 17-19%, as more consumers are attracted to the reduced prices.
Both the stocks have given multibagger returns with TBZ increasing 113% in the current calendar year itself and by 132% in the last one year. PC Jewellers’ shares have gained 367% in the last one year.
