ICRA said, the credit profile of organised retailers is expected to improve with favourable demand outlook, improving their trade with rapid formalisation of the sector, and better financing environment with enhanced access to gold metal loans.
According to ICRA, there has also been opportunistic buying by consumers and traders for the next festive and wedding season ahead of the Goods and Service tax (GST) rollout, thus driving the jewellery sales in Q2 of CY2017.
"Following a tumultuous CY2016, jewellery demand has rebounded sharply in the last two quarters. Easing liquidity pressures with fading impact of demonetisation, extended wedding season, better farm output and rising income levels have supported the growth. Further the demand is unlikely to be impacted by the GST rate which at three per cent is only marginally higher than the earlier rates," ICRA Senior Group Vice President Subrata Ray said.
The net tax outgo post-GST is in fact seen declining by one per cent for a retailer (where jewellery manufacturing is outsourced and input credit is availed) and increasing by 1.2 per cent (if credit is not availed), he added.
"This will trigger the retailers to source from tax compliant suppliers and goldsmiths enabling them to claim input tax credit on jewellery and other services availed. The transition towards streamlining of supply chain will be challenging with some temporary impact on demand," he added.
ICRA also said there is likely to be consolidation in the near to medium term, where organised players may acquire smaller entities or enter into franchise agreements.
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