New Delhi, May 15
The domestic Passenger Vehicle (PV) dealership industry will see a revenue growth of around 100 Basis Points (BPS) in the current financial year, supported by a revival in sales volume even as realisations remain range-bound, according to a Crisil Ratings report released on Thursday.
Crisil Ratings director Himank Sharma said, "Increasing urban disposable incomes backed by revision in tax slabs, interest rate cuts and a benign inflation, and sustained popularity of SUVs, will fuel urban demand for PVs."
"In the rural segment, sales of small cars could see an uptick on expectations of a normal monsoon and improved farm incomes amid higher Minimum Support Prices. Consequently, we see the industry growing at 7-9 per cent this fiscal," he added.
The improvement in volume will benefit dealers in two ways. First, ancillary income will rise while promotions and discounts will reduce, lifting operating profitability to 3.2-3.4 per cent after it fell 30-35 BPS last fiscal.
Second, elevated inventory levels from last fiscal will moderate. That, and no major Capex expected for showroom expansion, will reduce debt levels, the report states.
The Crisil Ratings analysis based on 110 PV dealers indicates that their credit profiles will remain stable after moderating last fiscal.
Volume growth is pegged at 4-6 per cent this fiscal, with realisations expected to rise 3-4 per cent backed by price increases by Original Equipment Manufacturers (OEMs) and continuing tilt towards Sports Utility Vehicles (SUVs).
Consequently, dealers are expected to see high single-digit revenue growth with both the urban segment (constituting two-thirds of the annual demand) and the rural segment growing in tandem.
Higher volumes will also lift ancillary revenues from sales of motor insurance and accessories. Also, services and spares revenues will benefit from the high PV sales seen from fiscals 2022 to 2024. All these are relatively higher-margin segments and will cumulatively contribute 11-13 per cent of total revenues, compared with around 10 per cent or lower during the past few fiscals.
With improved revenue visibility and push towards high-margin businesses, discounts and promotions will be limited to the non-peak seasons instead of year-round seen last fiscal. This reduction in sale promotion costs should provide a 15-20 BPS uptick to operating profit margins to 3.2-3.4 per cent this fiscal.
Dealers saw their inventory rise to 50-55 days last fiscal from the normal 30-35 days as retail sales slowed and OEMs sent stock aggressively to push sales numbers.
This fiscal, while improved demand will result in inventory correction by 5-10 days, it will remain higher than the average levels seen prior to fiscal 2024, the report said.
— IANS
Reader Comments
Finally some good news for our auto sector! With better monsoons and tax benefits, this growth seems sustainable. But dealers should pass some benefits to customers too - car prices have become too high for middle class families. 🚗
SUV craze continues! But what about electric vehicles? Dealers should focus more on EV infrastructure. In cities like Bangalore, people are hesitant to buy EVs due to charging concerns. This report misses that angle completely.
As someone from rural MP, I can confirm small car demand is rising. But dealers need to improve after-sales service in tier 3 cities. Currently we have to travel 100km just for basic servicing. Growth should mean better service networks too!
Good analysis but I'm concerned about inventory levels still being high. Dealers shouldn't repeat past mistakes of overstocking. Also, hope this growth creates more jobs in showrooms and service centers across India.
The real test will be how dealers handle the festive season. Last year Diwali sales were disappointing. With better economic indicators, this year should be different. Fingers crossed! 🤞
While the numbers look positive, I wish dealers would be more transparent about pricing. Too many hidden charges still exist. Government should make on-road pricing mandatory in all advertisements. #ConsumerRights
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.