PV Dealership Industry Growth: 7-9% This Fiscal | Crisil Report

Mumbai, May 15 (PTI) Domestic passenger vehicle dealership industry is likely to see a 7-9 per cent growth this fiscal driven by lower tax slabs and interest rates and benign inflation, ratings agency Crisil said on Thursday.

It also said that the industry is likely to see around 100 basis points year-on-year increase in revenue supported by a modest revival in sales volume even as realisations remain rangebound.

While a tad better than last fiscal, growth has eased from the strong post-Covid-19 rebound seen up to fiscal 2024 as volume growth normalized, it said.

Moreover, dealers saw their inventory rise to 50-55 days last fiscal from the normal 30-35 days as retail sales slowed and OEMs sent stock aggressively to push sales numbers, the rating agency said, adding that while improved demand will result in inventory correction by 5- 10 days this fiscal, it will remain higher than the average levels seen prior to fiscal 2024.

"Increasing urban disposable incomes backed by a revision in tax slabs, interest rate cuts and benign inflation, and sustained popularity of SUVs, will fuel urban demand for passenger vehicles. In the rural segment, sales of small cars could see an uptick on expectations of a normal monsoon and improved farm incomes amid higher minimum support prices. Consequently, we see the industry growing at 7-9 per cent this fiscal," said Himank Sharma, Director, Crisil Ratings.

Improvement in volume will benefit dealers in two ways-- first ancillary income will rise while promotions and discounts will reduce, lifting operating profitability to 3.2-3.4 per cent after it fell 30-35 basis points last fiscal and second, elevated inventory levels from last fiscal will moderate. That, and no major capex expected for showroom expansion, will reduce debt levels, it said.

Consequently, Crisil Ratings said, the credit profiles of dealers will remain stable after moderating last fiscal from the healthy levels seen after the pandemic.


Crisil Ratings said its analysis covers around 110 passenger vehicle dealers in the country.

Volume growth is pegged at 4-6 per cent this fiscal, with realisations expected to rise 3-4 per cent backed by price increases by original equipment manufacturers (OEMs) and a continuing tilt towards sports utility vehicles (SUVs).

Consequently, dealers are expected to see high single-digit revenue growth with both the urban segment (constituting two-thirds of the annual demand) and the rural segment growing in tandem, it said.

Higher volumes will also lift ancillary revenues from sales of motor insurance and accessories, Crisil Ratings said, adding services and spares revenues will benefit from the high passenger vehicle sales seen from fiscals 2022 to 2024.

All these are relatively higher-margin segments and will cumulatively contribute 11-13 per cent of total revenues, compared with around 10 per cent or lower during the past few fiscals, it said.

With improved revenue visibility and push towards high-margin businesses, discounts and promotions will be limited to the non-peak seasons instead of year-round seen last fiscal. This reduction in sales promotion costs should provide a 15-20 basis points uptick to operating profit margins to 3.2-3.4 per cent this fiscal, it stated.

"With moderate reduction in inventory on-year and limited capital expenditure for new showrooms, debt levels for dealers are likely to decline marginally this fiscal over last," said Ankita Gupta, Associate Director, Crisil Ratings.