A Crisil Ratings analysis of 70 gold jewellery retailers, accounting for a third of the organised sector’s revenues, shows that the Indian organised gold jewellery retail sector is expected to see sales volume decline a further 13-15% on-year this fiscal, after an 8% contraction last fiscal, due to high prices of gold and recent policy measures to curb imports of the metal.
Despite the expected decline in volume, the sector is poised to achieve a robust revenue growth of 20-25% on-year, driven by higher realisations. High prices of gold will lead to increased inventory holding costs and higher bank borrowings. However, an increase in both revenues and cash accruals will offset higher reliance on debt, resulting in
stable credit profiles.
In fiscal 2026, India imported 720 tonne of gold leading to foreign currency outflow of USD 72 billion. Amid sustained high gold prices and as a measure to reduce the trade deficit and support the currency, the central government recently raised customs duty on gold. This aims to reduce demand for the precious metal and curb its imports. Consequently, the sector is expected to see its sales volume hit the lowest level in a decade, excluding the Covid-impacted fiscal 2021.
Although the uptick in realisations will yield inventory gains for retailers, some of these gains may be passed on to customers in the form of deeper discounts to incentivize volume sales. Additionally, increased promotional expenses and the trading of gold bars and coins will weigh on retailers’ gross margins. Nevertheless, overall cash accruals and absolute earnings before interest, taxes, depreciation and amortisation (Ebitda) are expected to improve, supported by higher realisations.
Domestic gold prices soared an unprecedented 55% last fiscal due to a rise in global gold prices amid geopolitical uncertainties, as well as a depreciating Indian rupee against the United States dollar. The surge in prices has hurt affordability, prompting a shift towards lightweight, lower-carat gold jewellery (16-22 carat range) and studded jewellery. Conversely, investment demand has gained traction over the past two fiscals, with sales of jewellery plummeting 25% and those of gold bars and coins surging over 50%. However, the persistently high gold prices and the recent hike in customs duty on gold are likely to dampen demand across various segments.Says Himank Sharma, Director, Crisil Ratings, “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. 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. As a result, volume of the gold jewellery retail sector will decline 13-15% on year to 620-640 tonne this fiscal, a level not seen in the past decade.”
However, at the current price of Rs 160,000 per 10 gram (24 carat), realisations will be 35-40% higher on-year this fiscal, thereby improving cash accruals. Even as gold bars and coins generate lower value-added revenues, and higher promotional expenses and discounts are incurred to drive sales volume, gold jewellery retailers are expected to see a
20% on year increase in absolute Ebitda this fiscal. This will partly cover for the increase in inventory holding costs for retailers – as inventory days may rise to 160-180 days (from 150 days last fiscal) and also lend support to retailers’ expansion plans.
Says Gaurav Arora, Associate Director, Crisil Ratings, “Organised retailers are expanding cautiously through franchise-led models, which is improving capital efficiency and widening their reach into Tier 2 and 3 cities. While overall debt will increase by a third this fiscal to maintain higher inventory levels for new and existing stores, credit profiles will remain stable supported by improved revenues from higher realisations, and healthy cash accruals.”
The total outside liabilities-to-adjusted net worth ratio of gold jewellery retailers, despite increasing, will remain controlled at 1.5 times as on March 31, 2027 (vs 1.2 times as on March 31, 2026). Steady cash flows will also cushion the impact on debt protection metrics, with median interest coverage seen moderating but remaining healthy at 5-6 times this fiscal (vs 7 times last fiscal).
