According to a report by CRISIL Ratings, car dealers are expected to see revenue growth of 8-10% this quarter. A combination of factors including 5-7% volume growth, premiumization and 2-5% price increases from original equipment manufacturers (OEMs) are driving sales growth.
According to a CRISIL Ratings analysis of 150 auto dealers, “Stable operating profitability and moderate debt keep the credit profile stable.”
Due to high base effects (particularly in the commercial vehicle (CV) and passenger vehicle (PV) segments) and factors specific to various vehicle segments, unit sales growth in the current quarter is expected to normalize from the previous year’s 17.3% increase . Growth in the current fiscal year will be in line with the pre-pandemic compound annual growth rate (CAGR) of 7% from FY2015 to FY2019,” the report said.
“Overall auto dealer sales will increase 5% to 7%, driven by steady growth in all vehicle segments.Solar sales will continue to grow, driven by improved semiconductor supply and domestic demand, particularly rapidly growing CV sales are expected to grow moderately by 4-6%, led by the utility vehicle sector, which is currently in the Two-wheeler sales are also expected to grow by 5-6%, supported by demand for executive and premium bikes, despite a low base, sluggish rural demand and increased competition from electric versions. It will increase slowly,” said Mohit Makhija, senior director, CRISIL Ratings. in release.
retail registration
Retail vehicle registrations registered a modest growth of 3% in the first seven months of the current financial year, but are expected to increase in the remaining five months. This was due to an increase in his PV and two-wheeler sales during the Christmas season, as well as an increase in his CV sales driven by increased mining and infrastructure activity in the previous quarter.
OEMs have increased prices by 2-5% in the past few quarters (5-14% in FY23). In addition to this, the full-year impact of price increases over the past few years will also support revenue growth for car dealers in the current period, the report said. However, CRISIL does not expect further price increases in the near term due to input price easing.
Premiumization also supports revenue growth. The share of utility vehicles, luxury motorcycles and scooters in particular is rising as consumers increasingly prefer value-added vehicles with premium safety features.
Operating profit margin
The report states that “automobile dealers’ operating margins are 3.5%, supported by moderate revenue growth and steady contribution (10-15%) of more profitable ancillary sales (services, spare parts, insurance). It is expected to stabilize at ~4.0%.”
Snehil Shukla, associate director, CRISIL Ratings, said, “Stable operating performance leading to healthy cash earnings, coupled with moderate debt, will strengthen debt protection metrics for auto dealers this quarter.”
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