Shares of Tribhovandas Bhimji Zaveri (TBZ) surged 18% to Rs 275.45, and PC Jewellers rose 5% to Rs 129.30, hitting fresh 52-week highs on the BSE, after a Crisil report estimated 22-25% revenue growth for retailers due to reduction in gold import duty in the July Budget.
Similarly, shares of Senco Gold rose 5% to hit a high of Rs 1,252.10, while those of Goldiam International rose nearly 10% to Rs 362.85.
Shares of RBZ Jewellers also rose 2% to hit the upper circuit of ₹ 150.65 in today's session on BSE.
Crisil says fall in gold price is good for organised jewellery sector
The industry is expected to benefit from better working capital management, according to a Crisil Ratings analysis of 58 gold jewellery retailers that covers a third of organised sector revenues.
Despite plans for store expansion (12-14% growth), lower gold prices are expected to reduce inventory costs, thereby easing financial pressure.
It is believed that the organised sector, which accounts for a third of the market, is going to perform better financially than the unorganised sector. Moreover, the recent price cuts have also come ahead of the festival and wedding season, which is a very crucial time. Reversing earlier stagnant demand projects, the fall in gold prices is expected to lead to a 3-5% rise in sales volumes this fiscal year.
According to Himansh Sharma, director, Crisil Ratings, “The duty cut to decade low has come at an opportune time for gold jewellery retailers, as they start stocking up for the festive and wedding season from late August.”
“However, inventory losses on existing stock due to price cuts will be partially mitigated by lower spends on marketing and discounts as demand revives. Overall, profitability will decline marginally year-on-year to 7.1-7.2 per cent,” he added.
Though profitability will remain under pressure, improved revenues will enable them to expand in the future. Store expansion is expected to grow by 12-14%, which will require higher inventory levels.
Gold jewellery market shows positive picture amid surge in demand due to price cuts
Driven by factors such as lower prices, rising demand and better working capital management, the financial outlook for gold jewellery remains positive despite a marginal decline in profitability.
The reduction in retail price by around Rs 4,500-5,000 per 10 grams has further increased the demand for gold jewellery.
This surge in demand has pushed growth estimates up by 500-600 basis points, up from the earlier estimate of 17-19%, as more consumers are attracted by lower prices.
Both the stocks have delivered multibagger returns, with TBZ gaining 113% in the current calendar year and 132% in the last one year. PC Jeweller shares have gained 367% in the last one year.
