With a revival in sales volume even as realisations remain rangebound, the domestic passenger vehicle dealership industry’s revenues will rise between 7 and 9 per cent this fiscal year.
The improvement in volume will benefit dealers, with ancillary income increasing while promotions and discounts decrease. The elevated inventory levels from last fiscal year will moderate, and no major capex is expected for showroom expansion, which will reduce debt levels, according to Crisil.
As the revenue improves, with visibility and push towards high-margin businesses, discounts and promotions will be limited to the non-peak seasons instead of the year-round approach seen last fiscal.
“Increasing urban disposable incomes backed by revision in tax slabs, interest rate cuts and a benign inflation, and sustained popularity of SUVS, will fuel urban demand for PVS. 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 of Crisil Ratings.
The reduction in sales promotion is expected to provide a 15-20 bps uptick to operating profit margins to 3.2 and 3.4 per cent this fiscal.
“Volume growth is pegged at 4-6 per cent (chart 1 in annexure) this fiscal, with realisations expected to rise 3-4 per cent backed by price increases by original equipment manufacturers (OEMS) and 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,” said the Crisil report.