Stable Credit Profile Seen For Automobile Dealers

KT Jagannathan
23 Nov 2023
09:16 PM
2 Min Read

CRISIL Ratings predicts growth this fiscal year to align with the pre-pandemic compound annual growth rate.


CRISIL Ratings Stable Credit Profile Seen For Auto Dealers mobility outlook

Auto dealers are likely to see an 8-10% revenue growth this fiscal, according to a report by CRISIL Ratings. A combination of factors – a 5-7% increase in sales volume, premiumisation and a 2-5% rise in prices by original equipment manufacturers (OEMs) – is driving the sales growth.

“That, along with steady operating profitability and moderate debt, will keep their credit profiles stable,” according to CRISIL Ratings analysis of 150 auto dealers.

Sales volume growth would normalise this fiscal from the 17.3% surge last fiscal due to the high-base effect (especially in the commercial vehicle (CV) and passenger vehicle (PV) segments) as well as factors specific to different vehicle segments. Growth this fiscal will be in line with the pre-pandemic compound annual growth rate (CAGR) of 7% between fiscals 2015 and 2019,” the report said.

“Auto-dealers’ overall sales volume will grow by 5 – 7% driven by steady growth in all vehicle segments. PV sales will grow 6-8%, led by improved semiconductor supplies and healthy domestic demand, especially in the fast-growing utility vehicles segment. CV sales volume will grow by a moderate 4-6%, supported by the Government’s infrastructure push, increased budgetary outlay and steady replacement demand. Despite a low base, tepid rural demand and increased competition from their electric versions, two-wheeler sales will also grow moderately at 5-6%, supported by demand for executive and premium motorcycles,” said Mohit Makhija, Senior Director, CRISIL Ratings, in a release.

Retail Registration

Retail auto registrations clocked a modest growth of 3% in the first seven months of this fiscal but should pick up in the remaining five months. This is due to higher sales of PVs and two-wheelers during the festive season and of CVs in the last quarter, led by increased mining and infrastructure activities.

OEMs have increased prices by 2-5% during the past few quarters (5-14% in fiscal 2023). This, along with the full-year impact of price hikes in the previous years, would also support revenue growth of auto dealers this fiscal, the report said. CRISIL, however, does not anticipate any further price hikes shortly due to the easing of input prices.

Premiumisation, too, will support revenue growth. The share of utility vehicles, premium motorcycles, and scooters, in particular, is rising as consumers increasingly prefer value-added vehicles with premium safety features.

Operating Profitability

“Operating profitability of auto dealers will remain stable at 3.5-4.0%, supported by moderate revenue growth and steady contribution (10-15%) of the more profitable ancillary sales (service, spare parts and insurance),” the report said.

According to Snehil Shukla, Associate Director, CRISIL Ratings, “Steady operating performance leading to healthy cash accrual, combined with moderate debt, will strengthen debt protection metrics of auto dealers this fiscal”.

Also Read

Auto Industry Must Embrace ACES, The New Normal

Share This Page