Operating margin, though, will be restored to the pre-pandemic level of 6.5-7.0%, with a moderation of 100-120 basis points (bps), given a stabilisation of gold prices and limited scope for further cost optimisation.
Recovery in revenue, along with improved accrual, continued inventory rationalisation and healthy capital structure will keep the credit outlook stable, shows an analysis of 86 jewellery retailers rated by CRISIL Ratings.
The growth this fiscal will come on a low base as revenue had contracted 3% and 8%, respectively, in fiscals 2020 and 2021. Demand had taken a knock after import duty was hiked by 250 bps to 12.5% in the Union Budget presented in July 2019, while in fiscal 2021, pandemic-induced lockdowns and store closures impacted revenue.
Says Anuj Sethi, Senior Director, CRISIL Ratings, “This fiscal, revenue of organised jewellers is also set to benefit from lower import duty, and introduction of mandatory hallmarking from June 16, 2021, which will make them more competitive compared with unorganised players. Also, while the second wave did curb operations in the first quarter, lockdowns in many states were localised and less stringent, and hence store closures were lower compared to the first wave. Besides, pent-up demand from weddings (55-60% of overall jewellery sales) and festivals in later quarters will help resurrect revenue, just as they did last fiscal.”