New Delhi [India], May 15 (ANI): India’s passenger vehicle (PV) dealerships are set to clock high single-digit revenue growth in fiscal 2025, buoyed by a 4-6 per cent increase in sales volume and a 3-4 per cent rise in average realisations, according to a report by market intelligence firm Crisil Ratings.
The report adds that the domestic passenger vehicle (PV) dealership industry will see revenue growth increase by 100 basis points (bps) on year, supported by a modest revival in sales volume even as realisations remain rangebound.
As per the report, the volume growth figures are backed by price increase by original equipment manufacturers (OEMs) and continuing tilt towards sports utility vehicles (SUVs).
Consequently, dealers are expected to see high single-digit revenue growth with both the urban segment (constituting two-thirds of the annual demand) and the rural segment growing in tandem.
While a tad better than last fiscal, growth has eased from the strong post-Covid-19 rebound seen up to fiscal 2024 as volume growth normalized, the rating agency observed.
According to the report, more volume will help dealers in two ways. First, auxiliary income will increase while promotions and discounts will decrease, raising operating profitability to 3.2-3.4 percent from 30-35 basis points previous fiscal year. Second, the excess inventory from the previous fiscal year will be reduced. This, combined with no large capital expenditures planned for showroom expansion, will cut debt levels, the report added.
Consequently, the credit profiles of dealers will remain stable after moderating last fiscal from the healthy levels seen after
the pandemic.
Observing the trends, Himank Sharma, Director, Crisil Ratings, said “Increasing urban disposable incomes backed by revision in tax slabs, interest rate cuts and a benign inflation, and sustained popularity of SUVs, will fuel urban demand for PVs.”
“In the rural segment, sales of small cars could see an uptick on expectations of a normal monsoon and improved farm incomes amid higher minimum support prices. Consequently, we see the industry growing at 7-9 per cent this fiscal,” the report added.
The report further adds that higher volumes will also lift ancillary revenues from sales of motor insurance and accessories. Also, services and spares revenues will benefit from the high PV sales seen from fiscals 2022 to 2024.
All these are relatively higher-margin segments and will cumulatively contribute 11-13 per cent of total revenues, compared with 10 per cent or lower during the past few fiscals.
Furthermore, the rating agency added that with improved revenue visibility and push towards high-margin businesses, discounts and promotions will be limited to the non-peak seasons instead of year-round seen last fiscal.
This reduction in sales promotion costs should provide a 15-20 bps uptick to operating profit margins to 3.2-3.4 per cent this fiscal.
As per the observations of the report, dealers have witnessed their inventory rise to 50-55 days last fiscal from the normal 30-35 days as retail sales slowed and OEMs sent stock aggressively to push sales numbers.
While increased demand will result in a 5-10 day inventory adjustment this fiscal year, it will stay higher than typical levels prior to fiscal 2024, the rating agency added. (ANI)
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