Credit outlook negative for gold jewellery retailers: CRISIL

New Delhi: Slack demand leading to lower cash accrual, elevated inventory levels and curtailed bank finance will lead to moderately negative credit outlook for gold jewellery retailers this fiscal and hard-brake store expansion, credit ratings firm CRISIL NSE 2.25 % said in a report on Thursday.

The report said sales volumes plunged because of curtailed discretionary spending following the Covid-19 pandemic, stores remaining shut for most of the first quarter, and intermittent lockdowns in some states in the second quarter.

“The number of new store additions is expected to reduce to almost a third of the average between fiscal 2017 and 2020,” CRISIL said.

It said capital investments will be about 70% lower at Rs 650-700 crore this fiscal compared with the average of the past four fiscals.

Cash accruals, too, are expected to decline by close to 40%, an expected 35-40% fall in sales volume, which it said is the steepest year-on-year drop in more than a decade despite higher gold prices.

CRISIL Ratings director Mohit Makhija said in a statement: “The dent in cash accrual will be material given the fall in absolute profit because of the sharp decline in revenue. That, along with increased inventory holding owing to a sharp decline in sale volume – and despite lower store expansion – will affect the credit metrics of jewellers.”

Recovery in gold jewellery demand is expected to be gradual and start with the upcoming festive and wedding seasons. Wedding jewellery accounts for 55-60% of demand and postponement of marriages because of the pandemic means pent-up demand will manifest later.

Courtesy: Retail Jeweller India News Service