On the back of a mix of positives, auto dealers can expect their fastest revenue growth in three fiscal years, with sales accelerating 20-25 percent year-over-year on the back of volume growth of 12-14 percent, it said in a report on Wednesday.

This will be facilitated by increased personal mobility benefits, increased economic activity, easing of supply-side constraints, a shift in the product mix towards more expensive cars, and a 5-7 percent increase in prices. Crisil rating says in his report.

According to the report, rising car sales and higher contribution of more profitable ancillary revenues to 10-12 percent of total revenue in the current fiscal year from 8-9 percent last fiscal will help stabilize operating margins at 3-5 percent. compared to 4 percent in FY2022.

This can lead to healthier credit risk profiles, a study of 113 car dealers evaluated Chrisil The grades showed.

Ancillary income includes income from service, spare parts and insurance.

Retail auto registrations, which fell in FY21 and partially recovered in FY22, continued to recover in the first five months of this fiscal year as retail demand recovered and semiconductor shortages eased.

However, the revenue recovery will not be uniform across dealership segments, Krizil said.

It noted that while passenger vehicle (PV) dealers will continue to witness a strong recovery, commercial vehicle (CV) and two-wheeler (2W) dealers will grow on a lower base due to subdued sales over the last two to three financial periods. .

“With a strong recovery in sales, operating margins of PV and CV dealers will return to pre-pandemic levels of 4-5 per cent, while margins of two-wheeler dealers will gradually increase to 3-4 per cent this fiscal (against 4 per cent pre-pandemic),” he said Gautam Shahidirector of Crisil Ratings.

PV dealers will see strong volume growth of 17-19 percent in the current financial year in line with the improvement OEM (Original equipment manufacturers) growth prospects and an increase in average sales volume per vehicle due to higher sales share of higher-priced utility vehicles, which will lead to a 24-26 percent growth in total revenue, according to Crisil’s forecast.

For CV traders, volume growth was pegged at 20-22 percent on the back of a pick-up in economic activity, increased demand for replacements and a government infrastructure boost.

It also said that a price increase of 4-5 percent after higher material costs would push overall revenue growth in the CV segment to 25-27 percent.

While the revival of educational institutions and offices has been a tailwind for two-wheeler sales, this fiscal year slower recovery in rural demand, rising prices and competition from electric two-wheelers will continue to restrain volume growth to 9-11 percent, which would lead to modest revenue growth of 15-18 percent on a low base in fiscal 2022, the report said.

“Improved revenue growth and profitability should boost auto dealers’ cash accruals in fiscal 2023, which, along with expected inventory reductions from higher demand, will help auto dealers reduce working capital costs.

“Higher cash flow, lower inventory costs and stronger balance sheets will improve auto dealers’ debt performance this fiscal year.” said Sushant Sarodedeputy director of Crisil Ratings.


(With inputs from PTI)

https://economictimes.indiatimes.com/industry/auto/auto-news/auto-dealers-to-clock-their-fastest-revenue-growth-in-three-fiscals-says-crisil/articleshow/94514231.cms

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