Revenue will jump 21–23% in FY26 due to gold prices rising 25–27%.
Sales volumes will fall 4–6% as consumers shift to lighter-weight jewellery.
Retailer credit profiles will remain stable despite modest operating margin pressure.
Jewellery sales volume is expected to decline by 4-6 per cent in the current financial year, even as revenue is projected to grow by a robust 21-23 per cent, driven by a surge of up to 27 per cent in gold prices, Crisil Ratings said in a report on Thursday.
Organised retailers are also expected to continue gaining market share as consumers increasingly gravitate towards trusted brands offering greater transparency.
Their exchange programmes and gold savings schemes should further support market share gains despite a challenging demand environment.
"We expect retail jewellery volumes to contract at a slower pace of 4-6 per cent this fiscal. Revenue growth, however, should remain robust at 21-23 per cent, supported by gold prices averaging 25-27 per cent higher than last fiscal," Crisil Ratings report said.
"Demand indicators point to stabilisation rather than a broad-based recovery. Consumers remain price-sensitive and are increasingly shifting towards lighter-weight and lower-carat jewellery to manage affordability. As a result, jewellery volumes are expected to decline 4-6 per cent this fiscal, while investment demand for coins and bars, which accounts for nearly 40 per cent of overall demand, is likely to contract 4-5 per cent," Crisil Ratings Director Himank Sharma said.
Last fiscal year, margins benefited from substantial inventory gains driven by the steep increase in gold prices.
As price appreciation moderates, these gains are likely to taper. At the same time, retailers are expected to step up spending on promotions and customer engagement initiatives to sustain footfalls and conversions.
Consequently, operating margins are projected to soften by 60-80 basis points from last fiscal's 9.3 per cent to about 8.5-8.7 per cent this fiscal.
Higher inventory valuations are expected to drive additional working capital requirements, leading to increased borrowings, even as retailers continue to invest in network expansion and product diversification.
However, expansion plans are likely to remain measured, with store additions projected at 7-9 per cent of the existing network over the next two fiscal years, down from 12-15 per cent in the previous two fiscal years.
These investments are expected to be funded through a balanced mix of internal accruals and debt.
"While elevated gold prices will increase inventory funding requirements, the sector's credit fundamentals remain well supported by healthy cash accruals, prudent inventory management and measured growth strategies. As a result, credit profiles are expected to remain resilient despite higher working-capital intensity," Crisil Ratings Team Leader Nishita Vora stated.
Going forward, the sector's performance will depend on gold price movements, changes in import duties and regulatory policies, and evolving consumer sentiment, the report added.
