India’s Auto Dealers Revenue Growth to Slow Amid Inventory Rise

Chennai: Revenue growth of auto dealers will slow to 7-9 per cent this fiscal after a healthy 14 per cent last fiscal due to moderation in sales volume growth and modest price hikes by original equipment manufacturers (OEMs).

Moderation in sales volume growth to 6-7 per cent this fiscal against 8 per cent last fiscal will be led by the passenger vehicle and commercial vehicle segments, while two-wheelers ride well. Passenger Vehicle volume may grow slower at 3-5 per cent on a high base of the past three years. CV sales are seen flattish, again on an increased base created by the volume growth momentum of the past 2-3 fiscals, amid healthy demand from the infrastructure sector.

On the other hand, two-wheelers may provide some respite growing by 8-10 per cent on a low base backed by recovery in the rural and semi-urban markets following a likely normal monsoon this season.

Inventory of PV dealers is said to have risen above normative levels to reach 50-55 days at the end of last fiscal. With sales volume growing at a slower pace of 4 per cent in the first four months of this fiscal, dealer inventory is estimated to have risen by another 15 days. We expect inventory to ease a bit in the second half as sales pick up in the festive season amid higher discounts and offers, yet it will end higher than normative levels this fiscal, too. The working capital cycle for two-wheeler and CV dealers is foreseen steady.

Lower sales volume growth has led to higher discounts and offers by OEMs and dealers over the past few months. While a large part of the impact is borne by the OEMs, this will pull down the operating profitability of auto dealers to 3 per cent, a tad lower than the average of 3.5 per cent seen in the past three years.

Price increases will likely be muted at 1-2 per cent this fiscal, compared with 4-5 per cent last fiscal as dealers offer generous discounts to prevent further pile-up in inventory. But increasing demand for premium vehicles in the PV and 2W segments, especially fast-growing utility vehicles and premium motorcycles and scooters, will improve the blended realisations, thereby partly supporting the overall revenue growth of auto dealers.