(Kitco News) - Rising gold prices are boosting the growth rate of India’s jewelry consumption, which could be as much as 50% higher than the initial projections for 2024, according to ICRA Limited, a Moody’s affiliated investment information and credit rating agency.
“ICRA has revised upward its forecast of the year-on-year (YoY) domestic jewellery consumption growth (in value terms) for FY2024 to 10-12% from 8-10% estimated earlier, primarily driven by the rise in gold prices,” wrote ICRA Vice President Sujoy Saha and Senior Analyst Raunak Modi in the new report.
The authors project jewelry consumption to rise by “more than 15% YoY in H1 FY2024, aided by stable demand during Akshaya Tritiya and higher gold prices.” They then predict the growth rate will moderate to 6-8% in the second half of the year due to ongoing weakness in rural demand due to persistent high inflation.
“After remaining volatile between December 2022 and April 2023, gold prices were relatively stable in H1 FY2024, although the same rose ~14% compared with the average prices in H1 FY2023,” they wrote. “The elevated price levels supported revenue expansion of most jewellery retailers amid muted volume growth.”
The authors said that gold prices could remain elevated in the near term on the back of Middle East tensions and the evolving global macroeconomic environment. “The spike in gold prices since early October 2023 and persistent inflationary headwinds remain key risks to demand,” they warned.
The report based their updated projections on the growth rates of the country’s largest brand-name jewelry retailers, which are seeing strong demand from the public.
“ICRA’s sample set of 14 large jewellers, which accounts for ~70% of the organised market, is projected to record a healthy revenue expansion of 15-18% YoY in FY2024 on the back of their planned retail expansion and a gradual shift in consumer preferences towards branded jewellers,” they said. “The organised jewellery retailers are expected to outperform the industry over the medium term, supported by tailwinds from accelerated formalisation of the industry.”
ICRA projections see the operating margins of these big players moderating in 2024 “owing to the front-loaded operating costs for planned store additions and increased advertising expenditure amid rising competition.:”
“Nevertheless, the benefits of economies of scale are likely to support the operating margins, which are estimated to hover in the range of 7.5-8% over the near-to-medium term,” the authors wrote. “Despite the projected increase in the debt levels to fund the inventory for new stores, the debt protection metrics of ICRA’s sample set of companies are estimated to remain comfortable.”
After pausing their retail expansion in fiscal years 2021 and 2022, the organized jewelers began opening new stores once again last year, “with the store count of ICRA’s sample set of jewellers estimated to have risen by more than 20% during the year,” they said. “The momentum is likely to continue over the near-to-medium term with a likely increase in the store count by 18-20% YoY in FY2024, supporting their revenue growth.”
According to the latest India Chart Book from Metals Focus, gold prices in the country are climbing back toward the all-time highs set in December of last year while holdings in gold-backed exchange-traded products (ETP) are at levels not seen since 2012.
Meanwhile, local gold prices are rising back toward premium territory after three months at net discounted levels.