Automobile dealers to record their fastest revenue growth in three years: Crisil report

Automobile dealers are expected to record their fastest revenue growth in three years with sales increasing by 20-25% year-on-year (YoY) led by a 12-14% volume growth, according to a report by market rating agency Crisil. 

The report was based on a study of 113 automobile dealers by the company. 

Factors such as increased preference for personal mobility, higher economic activity, easing supply-side constraints, a shift in product mix towards higher-priced vehicles, and price hikes of vehicles by 5-7% are aiding the sector’s revenue growth. 

Operating margin is expected to stabilise at 3-5% this year compared to 4% last year, backed by an increase in vehicle sales and a larger contribution of the more-profitable ancillary revenue from service, spare parts and insurance to 10-12% of total income in FY23, as per the report. 

The January-May period of FY22 witnessed a steady recovery of retail auto registrations, due to the easing of semiconductor shortages. According to the report, dealers of the Commercial Vehicle (CV) and Two-Wheeler (2W) segments will grow on a lower base due to a reduction in sales over the last two-three years. However, dealers of Passenger Vehicles (PV) are expected to see a stronger recovery.

The operating profitability of PV and CV dealers is expected to reach pre-pandemic levels of 4-5%, and the margins of two-wheeler dealers are expected to increase gradually to 3-4% this year. During pre-pandemic times, their profitability stood at 4%.

As Original Equipment Manufacturers (OEM) are seeing a positive growth outlook, PV dealers are expected to see strong volume growth of 17-19%. Media reports said that the overall revenue growth of 24-26% was achieved, owing to an average realisation for each vehicle due to an increase in the proportion of higher-priced utility vehicle sales.

Due to a rebound in economic activity, higher replacement demand, and the government’s infrastructure push, volume growth for CV dealers has reached 20-22%. Additionally, price hikes of 4-5%, following higher input costs, are likely to increase the overall revenue growth in the CV segment to 25-27%.

Revenue growth for CVs in FY22 is expected to be at 15-18% with reduced volume growth at 9-11%, due to slower recovery in rural demand, price hikes and competition from electric two-wheelers. Experts said that auto dealers will improve their debt metrics this year, with higher cash flows, lower inventory costs and strengthening balance sheets.

  
Source: Economic Times