Revenues to still grow in double digits; credit profiles supported by higher operating margins

The continued rise in retail gold prices to an all-time high is expected to reduce the sales volume of organised gold jewellery retailers by 9-11% in fiscal 2026. However, with prices and realisations expected to be significantly higher onyear, revenues will still grow 13-15%.

This comes on the back of four straight years of more than 20% revenue growth, which has seen the industry grow 2.5 times since fiscal 2021. Volume, however, has remained subdued with consumers purchasing smaller quantities amid budget constraints due to higher prices.

An interplay of multiple factors is visible amid the continually rising gold prices. For one, as demand wanes, retailers are pushing sales through promotions and discounts amid increasing penetration in Tier 2 and 3 cities.

The resultant increase in costs, however, will be more than covered by jewellery getting sold at prices higher than the purchase and making prices. Thus, operating profitability will rise 30-40 basis points (bps) on-year, driven by inventory gains.

The higher prices will also push up working capital borrowings for purchasing inventory for existing and planned stores. Nonetheless, leverage will remain under control and debt protection metrics healthy, supporting credit profiles.

A Crisil Ratings analysis of 60 gold jewellery retailers, which account for a third of the revenue of the organised jewellery sector, indicates as much.

In fiscal 2025, retailers took a 4-5% hit to volume as gold prices soared ~25% on-year (refer to Chart 1) amid geopolitical and economic concerns. As of mid-April 2025, gold prices are already ~20% higher than the average price in fiscal 2025. Thus, even if the prices move up only 4-5% from here, the average price will still be up 22-24% on-year for fiscal 2026.

Says Himank Sharma, Director, Crisil Ratings, “The recent jump in prices came just before the start of the festive and marriage seasons in the first half of April 2025, limiting the impact on demand thus far. However, as ticket sizes for buyers are likely to remain constant, caratage and grammage may reduce, as seen in the last four fiscals, impacting volumes. The demand, though lower, remains supported by duty cuts on gold imports announced last year.”

As such the implementation of Goods and Services Tax and Bureau of Indian Standards hallmark continue to push customers towards organised retailers, supporting revenue growth. Higher realisations will push another year of doubledigit revenue growth for organised retailers, resulting in revenues of Rs.4.5-5.0 lakh crore for the industry.

The higher prices will have a two-way impact on retailers. One, with jewellery sold at prices higher than the purchase prices, resulting in an inventory gain of 20-30 bps, we expect the operating margin to break the declining trend of the last two fiscals and inch closer to the seven-year average of 7.8-8.0% in fiscal 2026 (refer to Chart 2). Two, the debt of gold jewellery retailers rated by Crisil Ratings will rise as the cost of inventory replenishment as well as new store inventory rises with higher prices, although higher revenue and profitability will provide cash flow towards store expansion.

Says Gaurav Arora, Associate Director, Crisil Ratings, “Despite the increasing debt, the capital structure of gold jewellery retailers will remain comfortable. Improved revenues and operating profitability will absorb the impact on debt protection metrics as well with median interest coverage seen healthy, over 6 times in fiscal 2026.”

That said, any sharp volatility in gold prices, changes in government regulations and import duties on gold, and consumer sentiment will bear watching.

Annexure
Chart 1: Domestic retail gold prices (Rs per 10 gram, 24 carat)
Chart 2: Revenue and operating margin of 60 gold jewellery retailers rated by Crisil Ratings

Courtesy: AOJ Desk News