Jewellery consumption, in terms of value, is expected to grow by 10-12 per cent in this financial year, mainly on account of increase in gold prices, a report said on Friday.

Rating agency Icra has revised upward its forecast for the year-on-year (YoY) domestic jewellery consumption growth (in value terms) in FY24 to 10-12 per cent from the earlier estimates of 8-10 per cent, primarily driven by the rise in gold prices.

Jewellery consumption is estimated to have risen by more than 15 per cent YoY in the first half of FY24, aided by stable demand during 'Akshaya Tritiya', a festival considered auspicious for buying precious metals, and higher gold prices.

However, Icra projects the growth rate to moderate to 6-8 per cent in the second half of this financial year due to sustained tepid rural demand amid persistent inflation.

After remaining volatile between December 2022 and April 2023, gold prices were relatively stable in the first half of FY24, although up 14 per cent compared to the average prices during the year-ago period, noted the report.

The elevated price levels supported revenue expansion of most jewellery retailers in the face of muted volume growth, it said.

The ongoing tensions in the Middle East and the evolving global macro-economic environment could keep gold prices elevated in the near term.

The spike in gold prices since early October 2023 and persistent inflationary headwinds remain key risks to demand, it stated.

"Jewellers of the organised market is projected to record a healthy revenue expansion of 15-18 per cent YoY in FY24 on the back of their planned retail expansions and a gradual shift in consumer preferences towards branded jewellers. The organised jewellery retailers are expected to outperform the industry over the medium term supported by tailwinds from accelerated formalisation of the industry," Icra Vice President and Sector Head Sujoy Saha said.

Icra has projected some moderation in FY24 in the operating margins of organised players owing to the front-loaded operating costs for planned store additions and increased advertising expenditure in the face of 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 per cent in the near to medium term.

Despite the projected increase in debt levels to fund the inventory for new stores, the debt protection metrics for the players are estimated to remain comfortable.

"The organised jewellers had recommenced their retail expansion in FY23, after a brief hiatus in FY21 and FY22, with the store count estimated to have risen by more than 20 per cent during the year. The momentum is likely to continue over the near to medium term with an estimated increase in store count by 18-20 per cent YoY in FY24, supporting their revenue growth," Saha added.

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