Auto dealers to clock 8-10% revenue growth

Pune: Auto dealers will see revenue accelerate 8-10 per cent this fiscal, driven by a 5-7 per cent increase in sales volume, premiumization, and price hikes of 2-5 per cent by original equipment manufacturers (OEMs).

That, along with steady operating profitability and moderate debt, will keep their credit profiles stable, a Crisil Ratings analysis of 150 auto dealers indicates.

It said sales volume growth will normalize this fiscal from the 17.3 per cent 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.

Growth this fiscal will be in line with the pre-pandemic CAGR of 7 per cent between fiscals 2015 and 2019.

“Auto-dealers’ overall sales volume will grow by 5 – 7 per cent driven by steady growth in all vehicle segments. Passenger vehicle sales will grow 6-8 per cent, led by improved semiconductor supplies and healthy domestic demand, especially in the fast-growing utility vehicles segment,” says Mohit Makhija, Senior Director at Crisil Ratings.

He said commercial vehicle sales volume will grow a moderate 4-6 per cent, 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 per cent, supported by demand for executive and premium motorcycles,” Makhija pointed out.

Retail auto registrations clocked modest growth of 3 per cent in the first seven months of this fiscal but should pick up in the remaining five months on higher sales of passenger vehicles and two-wheelers during the festive season, and of commercial vehicles in the last quarter led by an increase in mining and infrastructure activities.

OEMs have increased prices by 2-5 per cent during the past few quarters (5-14 per cent in fiscal 20233).

This, along with the full-year impact of price hikes in the previous years, will also support revenue growth of auto dealers this fiscal.

Crisil Ratings said premiumization, 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 3.5-4.0 per cent, supported by moderate revenue growth and steady contribution (10-15 per cent) of the more profitable ancillary sales (service, spare parts, and insurance).