Automotive dealers will see revenue accelerate 8-10 percent this fiscal, which will be driven by the growth of around 5-7 percent in sales volume, premiumisation and price hikes of 2-5 percent by automakers states a Crisil report.
That, along with steady operating profitability and moderate debt, will keep their credit profiles stable, which is based on a Crisil Ratings analysis of around 150 auto dealers indicates.
The sales volume will normalise this fiscal from the 17.3 percent surge last fiscal, due to the high-base effect (especially in the commercial vehicle and passenger vehicle segments) as well as factors specific to different vehicle segments. The growth this fiscal will be in line with the pre-pandemic compound annual growth rate (CAGR) of around 7 percent between fiscals 2015 and 2019.
Mohit Makhija, Senior Director, Crisil Ratings said “Auto dealers overall sales volume will grow by 5–7 percent driven by steady growth in all vehicle segments. PV sales will grow 6-8 percent, led by improved semiconductor supplies and healthy domestic demand, especially in the fast-growing utility vehicles segment.
The commercial vehicle sales volume on the other hand it estimated will grow a moderate 4-6 percent, supported by the government’s infrastructure push, increased budgetary outlay and steady replacement demand. Despite a low base, tepid rural demand and increased competition from their electric versions, two-wheeler sales will also grow moderately at 5-6 percent, supported by demand for executive and premium motorcycles.”
Infra push to drive registrations
Retail auto registrations clocked modest growth of 3 percent in the first seven months of FY2024, but Crisil expects that it will pick up in the remaining 5 months on the back of higher sales of PVs and two-wheelers during the festive season and of CVs in the last quarter led by an increase in mining and infrastructure activities.
| FY 2020 | FY 2021 | FY 2022 | FY 2023 | FY 2024 (7 Months) | FY 2024 (Projected) | |
| Commercial Vehicles | -9.70% | -43.70% | 37.20% | 31.70% | 3.00% | 4-6% |
| Passenger Vehicles | -6.70% | -15.00% | 12.90% | 22.40% | 5.20% | 6-8% |
| Two-Wheelers | -2.20% | -30.50% | 0.40% | 15.40% | 2.50% | 5-6% |
| Total | -3.20% | -28.90% | 3.60% | 17.30% | 3.00% | 5-7% |
OEMs have increased prices by 2-5 percent during the past few quarters (5-14% in fiscal 2023). This, along with the full-year impact of price hikes in the previous years, will also support revenue growth of auto dealers this fiscal. No further price hikes are anticipated in the near future due to easing input prices.
Premiumisation, too, will support revenue growth. The share of utility vehicles and premium motorcycles and scooters, in particular, is rising as consumers increasingly prefer value-added vehicles with premium safety features.
The operating profitability of auto dealers will remain stable at 3.5-4 percent, supported by moderate revenue growth and steady contribution (10-15%) of the more profitable ancillary sales (service, spare parts, and insurance).
Snehil Shukla, Associate Director, Crisil Ratings said, “Steady operating performance leading to healthy cash accrual, combined with moderate debt, will strengthen debt protection metrics of auto dealers this fiscal. Interest coverage6 is projected at 3.3-3.5 times compared with around 3.3 times last fiscal, while gearing is seen at about 1 time as of March 31, 2024, compared with 1.2 times a year earlier.”
