Auto dealerships to record fastest revenue growth in three fiscal years: report


By PTI IST (Released)

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The revenue recovery, however, will not be uniform across all dealership segments, Crisil said. He noted that while passenger vehicle (PV) dealerships will continue to see a robust recovery, commercial vehicle (CV) and two-wheeler dealerships will experience weaker growth due to subdued sales over the past two years. or three last exercises.

Auto dealers are expected to post their fastest revenue growth in three fiscal years, with sales up 20-25% year-on-year on volume growth of 12-14%, according to a report released Wednesday. This will be facilitated by a growing preference for personal mobility, higher economic activity, an easing of supply-side constraints, a shift in product mix towards more expensive vehicles, and price increases of 5 to 7 %, Crisil Ratings said in its report.

According to the report, higher vehicle sales and a greater contribution from more profitable ancillary revenue at 10-12% of total revenue in the current fiscal year, compared to 8-9% in the previous fiscal year, will help stabilize operating margin at 3-5% from 4% in FY22. This could lead to healthier credit risk profiles, a study of 113 car dealerships rated by Crisil Ratings showed.

Ancillary revenues include service, spare parts and insurance revenues. Retail auto registrations, which plunged in FY21 and partially recovered in FY22, continued to recover in the first five months of this fiscal year as retail demand picked up and alleviating semiconductor shortages.

The revenue recovery, however, will not be uniform across all dealership segments, Crisil said. He noted that while passenger vehicle (PV) dealerships will continue to see a robust recovery, commercial vehicle (CV) and two-wheeler dealerships will experience weaker growth due to subdued sales over the past two years. or three last exercises.

“With a strong recovery in sales, PV and CV dealer operating profitability will recover to pre-pandemic levels of 4-5%, while two-wheeler dealer margins will gradually increase to 3-4% over the course of the year. of this financial year (compared to 4 percent before the pandemic),” said Gautam Shahi, director of Crisil Ratings.

Photovoltaic dealers will experience strong volume growth of 17-19% in the current fiscal year, in line with improved growth prospects for original equipment manufacturers (OEMs) and increased average realization per vehicle due to a higher proportion of higher priced utility vehicle sales, driving overall revenue growth of 24 to 26 percent, according to Crisil forecasts.

For CV dealerships, volume growth was pegged at 20-22%, thanks to the recovery in economic activity, higher replacement demand and the government’s infrastructure push. He also said price increases of 4-5%, following rising input costs, will push overall revenue growth in the CV segment to 25-27%.

Although the reopening of educational institutions and offices has been a tailwind for the growth of two-wheeler sales, this slower fiscal recovery in rural demand, price increases and competition from electric two-wheelers will continue. to limit volume growth to 9-11%, resulting in modest revenue. growth of 15 to 18% on a weak fiscal 2022 base, he said. “Improved revenue and profitability growth is expected to increase auto dealers’ cash accumulation in fiscal 2023, which, together with the expected reduction in inventory following higher demand, will help auto dealers reduce their working capital costs.

“Higher cash flow, lower inventory costs and stronger balance sheets will improve auto dealership metrics this fiscal year.” said Sushant Sarode, associate director at Crisil Ratings.


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