Jewellers defer new showroom launches, consolidate non-profitable ones for survival. Most jewellery companies have deferred new showroom launches to FY23 and are consolidating their less profitable showrooms to remain afloat in the business which was dented throughout 2020, barring October – December quarter. The sector is likely to deleverage in FY22, backed by a revival in demand and no significant showroom launches. Limited incremental funding requirements and lower interest rates will keep a check on debt and interest outgo.
There has been a strong demand recovery in jewellery sales in the October – December 2020 quarter due to the festive season, pent-up wedding demand, 10% correction in gold prices during festivities from its peak in August 2020 and improved customer sentiments as multiple Covid-19 vaccines have been rolled out, finds the latest study done by India Ratings and Research (Ind-Ra).
With economic activities reaching to pre-Covid levels, the momentum is expected to continue in January – March quarter 2021 and FY22, backed by a softening of gold prices and economic recovery. Thus, gross domestic product growth will bounce back to 10.4% in FY 2022, primarily driven by the base effect.
The jewellery sector demand is likely to grow 30%-35% y-o-y in FY22, because of a low base and traditional and cultural factors supporting jewellery purchases. Although the recovery in FY22 will be V-shaped, the overall sectoral demand shall remain only 5%-10% above levels of FY20. Overall sectoral growth in FY22 shall be driven by an all-round economic recovery, resilient demand from weddings, volumes stimulated by gold price correction and overall growth in the underpenetrated rural segment.
Overall profitability of Indian jewellery companies meanwhile jumped by 7.7% for the nine months period ending December 2020 because of improved realisation, and a reduction in selling and promotion expenses among others. Although price realisation gains may not continue in FY22, lower operating leverage and improved efficiencies in terms of lower marking and selling expenses and lower rental are likely to support margins in FY22.
Courtesy By: DILIP KUMAR JHA