IGI Logo

Credit rating agency CRISIL in its latest report has said that automobile dealers are set to clock their fastest revenue growth in three fiscals with sales accelerating 20-25% on-year on the back of 12-14% volume growth, riding on five cylinders that have been firing well - increasing preference for personal mobility, higher economic activity, easing supply-side constraints, shift in product mix towards higher priced vehicles, and price hikes of 5-7%.  It said higher vehicle sales and greater contribution of the more-profitable ancillary revenue (service, spare parts and insurance) to 10-12% of total income in fiscal 2023 from 8-9% last fiscal will help stabilise operating margin1 at 3-5% (4% in fiscal 2022). This could lead to healthier credit risk profiles.

According to the report, retail auto registrations, which plunged in fiscal 2021 and revived partially in fiscal 2022, continued to recover in the first five months (April-August) of this fiscal with recovery in retail demand and easing of semi-conductor shortages. Recovery in revenue, however, will not be uniform across dealership segments. While passenger vehicle (PV) dealers will continue to show robust recovery, commercial vehicle (CV) and two-wheeler (2W) dealers will grow on a lower base due to subdued sales over the last 2-3 fiscals. PV dealers will see strong volume growth of 17-19% in the current fiscal in line with improved OEM growth outlook2, and increasing average realisation per vehicle due to higher proportion of higher priced utility vehicle sales, leading to overall revenue growth of 24-26%.

The report stated that for CV dealers, volume growth will be 20-22%, on the back of revival in economic activity, higher replacement demand, and the government’s infrastructure push. Price hikes of 4-5%, following higher input costs, will push overall revenue growth in the CV segment to 25-27%. Though reopening of educational institutes and offices have been tailwinds for 2W sales growth this fiscal, slower recovery in rural demand, price hikes and competition from electric two-wheelers will continue to constrain volume growth to 9-11%, leading to a modest revenue growth of 15-18% on a low base of fiscal 2022.