Higher customs obligation to hit gold jewelry demand this fiscal: Report

India’s gold jewelry demand is prone to fall by 5 per cent to 550 tonnes this fiscal, primarily as a result of hike in customs obligation, based on a report.

Rating company Crisil on Wednesday stated the hike in customs obligation on gold by 5 per cent to 12.5 per cent on June 30 is prone to lead to flat income progress for gold jewelry retailers within the present monetary 12 months in comparison with the distinctive demand witnessed within the year-ago interval.

Retailers must cross on the hike to clients, which can curtail demand and wean away discretionary consumers, it added.

According to the report, the customs obligation hike is prone to result in increased gold costs for finish customers and will curtail demand when it comes to quantity, which is prone to fall by 5 per cent this fiscal to 550 tonnes. In the year-ago interval, the identical stood at 580 tonnes.

After the pandemic-led disruptions abated within the first quarter of final fiscal, pent-up demand and an import obligation minimize of 5 per cent in February 2021, had triggered a pointy rebound in gross sales, which continued into the primary quarter of this fiscal.

Though increased gold costs will compensate for the quantity loss and make sure the trade’s income stays flat in comparison with final 12 months, working margins could be impacted, the report stated.

“With gold costs growing as a result of import obligation hike, gold jewelry retailers must undertake revolutionary gross sales strategies and launch promotional schemes to push gross sales.

“Inventory mix will see a shift towards lower-grammage ornaments to make products more affordable, while discounts could be offered on making charges. This will shave off operating margins by 50 basis points to 6.4-6.8 per cent this fiscal,” Crisil Ratings Director Rahul Guha stated.

Typically, because the festive season approaches, shops refill on merchandise and within the present fiscal ending March 2023, addition of recent showrooms is predicted to rise 10-12 per cent.

Together, it will enhance retailers’ working capital requirement by Rs 3,000-3,200 crore by way of the fiscal, which might mark a 35-40 per cent surge over the year-ago interval, the report stated.

“Gold jewellery retailers had reduced their leverage by limiting new store additions amid cautious funding stance by banks… credit profiles will still be stable,” Crisil Ratings Director Himank Sharma stated.