New Delhi, Sept 19 (KNN) Slack demand leading to lower cash accrual, elevated inventory levels and curtailed bank finance will lead to moderately negative credit outlook for gold jewellery retailers this fiscal and hard-brake store expansion, said credit ratings firm CRISIL said in a report.

The report on Thursday said that sales volume would plunge because of curtailed discretionary spending following the Covid-19 pandemic, stores remaining shut for most of the first quarter, and intermittent lockdowns in some states in the second quarter.

''The number of new store additions is expected to reduce to almost a third of the average between fiscals 2017 and 2020,'' the rating firm said.

It further said that consequently, capital investments will be 70 per cent lower at Rs 650-700 crore this fiscal compared with the average of the past four fiscals.

Cash accrual is expected to decline ~40 per cent on-year, given an expected 35-40 per cent fall in sales volume for the industry – the steepest on-year drop in more than a decade – despite higher gold prices.

“The dent in cash accrual will be material given the fall in absolute profit because of the sharp decline in revenue. That, along with increased inventory holding owing to a sharp decline in sale volume – and despite lower store expansion – will affect the credit metrics of jewellers. Interest coverage is expected to be 2.9 times compared with 4.2 times last fiscal,” said Mohit Makhija, Director, CRISIL Ratings.

The report also revealed that availability of finance, bank lending to the gems and jewellery sector declined 17 per cent over the 12 months through July even as gross bank credit rose 7 per cent. Given the series of delinquencies and asset quality issues the sector has witnessed over the past few years, banks have been cautious about renewing and enhancing funding limits.

Recovery in gold jewellery demand is expected to be gradual and start with the upcoming festive and wedding seasons. Wedding jewellery accounts for 55-60 per cent of demand and postponement of marriages because of the pandemic means pent-up demand will manifest later. Besides, the wallet share of jewellery purchases in overall wedding expenses would have increased because of savings on costs such as banqueting in view of social-distancing norms.