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Automobile dealers’ revenue growth is expected to slow down between 7 and 9 per cent this fiscal. According to Crisil, after a healthy 14 per cent growth in automobile dealers’ revenue last fiscal, the revenue growth will enter a slow lane. Higher discounts and offers by Original Equipment Manufacturers (OEM) and dealers over the past few months will bring down dealer profitability.
Further, lower profitability and an increase in inventory will keep working capital debt elevated for dealers this fiscal.
Moderated volume growth
“Moderation in sales volume growth to 6-7 per cent this fiscal (8 per cent last fiscal) will be led by the PV and CV segments, while two-wheelers ride well. PV 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,” said Mohit Makhija, Senior Director, CRISIL Ratings.
businessline had earlier reported that the Federation of Automobile Dealers Association (FADA) had flagged the increase in passenger vehicle inventory levels and approached Society Of Indian Automobile Manufacturers (SIAM) to assist in regularising the stocks.
With inventory up to 72 days and worth ₹70,000 crore, the body plans to approach financiers asking them to stop overfunding the dealers. “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 to be steady. 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 overall revenue growth of auto dealers,” states the Crisil report.
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