The duty cut from 15% to 6% has led to a notable increase in gold jewellery sales, driven by consumers addressing pent-up demand and making early purchases for weddings. The second quarter of the current financial year has shown a substantial uptick in gold jewellery sales, with retail prices steadily declining and attracting more buyers.
Gold Demand Surges Following Duty Reduction
Retailers such as Kalyan Jewellers India Ltd. and Senco Gold Ltd. have reported considerable improvements in same-store sales growth during this period. According to JPMorgan, Senco noted a 25-30% rise in sales during the first half of the second quarter, compared to a 10% increase in the first quarter. Despite this positive trend, the report cautions that some of this demand may be front-loaded, potentially impacting sales growth in the latter half of the fiscal year as consumers may have already made their festive and wedding purchases.
Challenges for Diamond Sales Amid Gold Focus
In contrast, the diamond segment has encountered difficulties. The shift in consumer preference towards gold jewellery has led to a slowdown in studded diamond sales. Titan Co. Ltd., a key player in the market, reported a 6% year-on-year increase in studded sales, compared to an 8% rise in overall jewellery sales. Additionally, the growing interest in lab-grown diamonds, perceived as a more affordable alternative to natural diamonds, has further impacted the natural diamond market.
While Titan and Kalyan Jewellers remain cautious about entering the lab-grown diamond space, Senco has introduced a new retail format, "Sennes," dedicated to lab-grown diamonds. The report indicates that the long-term effects of lab-grown diamonds on the natural diamond market are uncertain, making it a crucial area to monitor.
Expansion Plans Amid Competitive Landscape
The report also highlights the expansion strategies of major jewellery players. Kalyan Jewellers plans to open 80 new stores in India by March 2025, largely through a franchisee model. Titan and Senco are also expanding, with plans to add 40-50 and 15-20 stores, respectively. This expansion occurs in a competitive market where regional players are scaling up, and national brands are adopting more professional setups to maintain their market share. While the lower customs duty is expected to help formalize the industry, increased marketing and promotional expenses will be necessary to remain competitive.
Despite these pressures, JPMorgan anticipates that operating margins in the jewellery sector will remain stable. The impact of the duty cut on inventory will be spread over the next few quarters, minimizing its effect on profitability. However, the medium-term outlook may face challenges due to lower studded diamond sales, a focus on gold, and rising promotional costs. Additionally, large retailers are exploring international markets to leverage their brand equity, with Titan planning to open nine new Tanishq stores abroad by March 2025, Kalyan Jewellers set to launch its first US store before Diwali, and Senco already having a presence in Dubai.
