Mumbai: India Ratings and Research (Ind-Ra) has maintained a stable outlook on gems and jewellery exporters for FY 2015, while revising it on domestic retailers to stable from negative.
"The stable outlook for exporters is supported by expectation of modest demand growth in key export markets in FY 2015. Positive signs from export destinations such as higher disposable income and consumer spending as well as improvements in consumer confidence will support export volumes of gems and jewellery," Ind-Ra said in a report here.
Exporters are likely to report moderate revenue growth of 4-5 percent year-on-year in FY 2015, and operating margins in the range of 3.5-4 per cent, it said.
The outlook for domestic retailers was revised due to the likely increase in volume demand of gold jewellery.
Ind-Ra expects gold prices to decline in FY 2015 and improve the margins of domestic players by 1-2 percent to the FY 2013 levels of 9 percent.
It further explained that the margins were impacted in 2013 due to a rise in domestic gold prices and the players had to offer discounts to attract customers.
Revenue in FY 2014 was driven by gold prices and not volumes.
Further, support to revenue could come from new store additions by existing players in tier II and tier III towns.
Ind-Ra expects domestic retailers to witness 3-8 percent annual revenue growth in FY14 and FY15.
The working capital days of jewellery retailers have consistently increased since FY2009, and a possible uptick in sales volume could reduce inventory levels.
However, Ind-Ra said some industry players have been impacted by restrictions on leasing gold, which have caused them to purchase gold outright for manufacturing.
Given the typical inventory management practice, jewellers replenish gold almost daily to the extent used.
Thus, it said, a gradual fall in gold prices is unlikely to affect inventory value significantly.
However, any sharp correction in gold prices could result in some inventory write-offs, which would adversely impact profit margins by around 1-2 percent.
The outlook on domestic jewellery retailers could revise to negative if gold prices increase further or if regulatory risks persist, which could further impact their operating profitability and thus credit profile.
A positive outlook could result from a favourable policy environment, continued stability in gold prices and a continuous improvement in sales volume.
Geopolitical pressures like uncertainty in Russia and Ukraine or any financial turbulence in global economies, including that of China could severely affect most gems and jewellery exporters, it added.
