KOCHI: Joyalukkas India has had a remarkable year with its net profit almost doubling to Rs3,367 crore in FY26 from Rs1,691 crore in the previous year.
The interesting part is not just the size of the profit, but rather how the company managed to get there.
Gold prices rose sharply during the year. And Joyalukkas had most of its gold inventory unhedged. That ultimately handed out the company a real haul – its profit almost doubled.
CRISIL Ratings says Joyalukkas does not hedge most of its gold inventory and that its operating margin improved to around 19-20 per cent in FY26 from 13.6 per cent in FY25, mainly because of inventory gains from rising gold prices, along with cost control and operating leverage.
Logic is fairly simple
A jeweller buys gold and keeps it as inventory. If the price of gold subsequently rises sharply, the gold sitting in the inventory becomes more valuable. If the company is largely unhedged, it gets to retain the benefit of that rise.
On the contrary, a jeweller that hedges the gold-price risk has a different experience.
The physical gold inventory goes up in value when gold prices rise. But the hedge position moves in the opposite direction, offsetting the gain, partly or substantially depending on the hedge structure.
This is why hedging is not necessarily a bad strategy as it protects the jeweller if gold prices move the other way.
Gold metal loans (GML) is popular among jewellery retailers because it provides this hedging benefit. Jewellers generally align repayment with the sale of the jewellery made from that gold.
How they hedge
For listed jewellers, where gold-price risk has to be actively managed and disclosed, hedging is an important part of the risk-management framework.
Titan, for instance, says it manages gold-price risk through gold leases, futures and forward contracts under a board-approved bullion risk-management policy. Kalyan Jewellers also says it has a system to hedge gold inventory against fluctuations in gold prices.
This throws up an interesting question.
Did Joyalukkas' decision not to hedge most of its inventory give it an advantage over jewellers that had protected themselves against a rise as well as a fall in gold prices?
There is a catch, of course.
The same strategy that worked so well when gold prices were rising can work against the company when prices fall. CRISIL specifically warns that a significant fall in gold prices could hurt the jeweller’s profitability if it sits on an unhedged gold inventory.
So what we are seeing in FY26 may be a reward for taking a risk that others chose to hedge away.
