CRISIL Report: Auto dealers to witness fastest revenue growth in 3 fiscals

29 Sep 2022 , 07:57 AM

According to a report released on Wednesday, auto dealers may anticipate their strongest revenue increase in three fiscal years with sales rising 20—25% year over year on the basis of volume growth of 12—14%.

According to CRISIL Ratings, this will be helped by rising economic activity, a preference for personal mobility, easing supply-side limitations, a shift in product mix toward more expensive automobiles, and price increases of 5% to 7%.

According to the report, increased vehicle sales and a rise in the more lucrative ancillary revenue’s share of total revenue from 8%-9% to 10%-12% this fiscal year would help stabilize the operating margin at 3% to 5% as opposed to 4% in fiscal 2022.

A study of 113 car dealers that received CRISIL rating studied suggested that this would result in healthier credit risk profiles.

Service, spare parts, and insurance revenue are examples of ancillary revenue.

Due to a rebound in retail demand and a reduction in semiconductor shortages, retail auto registrations, which fell precipitously in FY21 and only partially recovered in fiscal 2022, continued to improve in the first five months of this fiscal.

According to CRISIL, however, the revenue recovery would not be the same for all dealership sectors.

While commercial vehicle and two-wheeler dealers will expand on a lower foundation due to muted sales over the past two to three fiscal years, it was highlighted that passenger vehicle (PV) dealers will continue to have a healthy recovery.

Volume growth for CV dealers has been estimated at 20—22% due to a rebound in economic activity, increased demand for replacement vehicles, and the government’s infrastructure drive.

Additionally, it was stated that the price increases of 4% to 6% that will result from higher input costs will cause the CV segment’s overall revenue growth to reach 25% to 27%.

Although the reopening of educational institutions and offices has been a positive factor in the growth of two-wheeler sales this fiscal year, slower rural demand recovery, price increases, and competition from electric two-wheelers will continue to limit volume growth to 9-11%, the report said. This will result in modest revenue growth of 15-18% on a low base of fiscal 2022.

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