'Jewellery exporters may see moderate growth'

'Jewellery exporters may see moderate growth'

India's compressed gold imports in the past year have cast a spell on jewellery exports and given rise to smuggling, but India Ratings and Research (Ind-Ra) is upbeat about jewellery exports reviving in fiscal 2015 as it sees demand returning in exporting destinations.

The stable outlook for exporters is supported by expectations of modest demand growth in key export markets in 2014-15. 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.

Exporters are likely to report moderate revenue growth of 4-5 per cent year-on-year in fiscal 2015, and operating margins 3.5-4 per cent, it said.

But the rating agency sees domestic jewellery retailers witnessing 3-8 per cent annual revenue growth in fiscal 2014 and fiscal 2015.

The working capital days of jewellery retailers have consistently increased since fiscal 2009, and a possible uptick in sales volume could reduce inventory levels, Ind-Ra noted.

It said some industry players were 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. That’s the reason any sharp correction in gold prices could result in some inventory writeoffs, which would adversely impact profit margins by around 1-2 per cent, it said.

The outlook on domestic jewellery retailers could revise to negative if gold prices increase further or if regulatory risks persist, which could further impact operating profitability and credit profile.

A positive outlook could result from a favourable policy environment, continued stability in gold prices and continuous improvement in sales.

Geopolitical pressures like uncertainty in Russia and Ukraine or any financial turbulence in global economies, including China, could severely affect most gems and jewellery exporters, the rating firm said.

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