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India Ratings Maintains 'Stable' Outlook for Gems, Jewelry

Jun 19, 2015 10:48 AM   By Jeff Miller
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RAPAPORT...  India Ratings & Research, a Fitch Group Company, maintained a "stable outlook" for the country's gems and jewelry exporters and retailers for the fiscal year that ends in April 2016. But the group noted that the outlook overall is brighter for India's retailers.
Revenue growth for the sector's exporters is expected to remain muted given mixed global demand for jewelry and gems. India Ratings anticipates an average rate of growth of between 3 percent and 5 percent, while the average earnings before interest, taxes and amortization (EBITDA) margins could increase by 100 to 200 basis points as processing margins improve -- due to a "moderation" in rough diamond prices.
Across India's jewelry retail industry, India Ratings anticipates revenue growth of between 10 percent and 12 percent as consumers increase spending and favor shopping at organized retailers. New store openings across  tier II and tier III cities in India will also provide support. EBITDA margins are likely to improve 100 to 300 basis points on average, given  the removal of the 80:20 gold scheme and the reinstatement of gold lease scheme, which lowers the price risk on inventory. Furthermore, the group expects consumers to  focus on higher margin diamond jewelry, which supports stronger EBITDA. However, the improvement will continue to be constrained by higher  promotional expenses and administration costs due to store expansions.

India Ratings expects credit availability to remain constrained as banks have  become selective in lending due to loan defaults and their own industry's restructuring.

Factors that remain a concern for India's jewelry exporters include any deterioration of consumer spending abroad due to a decline of real wages and rough diamond supply disruptions that lead to higher prices. Similarly, volatile gold prices would have a negative impact on the profitability of retailers.

Tags: Fitch, forecast, gems, gold, India, Jeff Miller, jewellery
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