New Delhi
Keeping the spirits flying high in India’s automobile industry, a forecast on the retail performance of the sector expects revenue of auto dealers to accelerate 8-10 per cent this fiscal, driven by 5-7 per cent increase in sales volume, premiumisation and price hikes of 2-5 per cent by original equipment manufacturers (OEMs). That, along with steady operating profitability and moderate debt, will keep their credit profiles stable, a CRISIL Ratings analysis of 150 auto dealers indicates.
Sales volume growth will normalise this fiscal from the 17.3 per cent 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. The Crisil report expects growth this fiscal to be in line with the pre-pandemic compound annual growth rate (CAGR) of 7 per cent between fiscals 2015 and 2019. Mohit Makhija, Senior Director, CRISIL Ratings expects auto-dealers’ overall sales volume will grow by 5–7 per cent driven by steady growth in all vehicle segments. While PV sales will grow 6-8 per cent, led by improved semiconductor supplies and healthy domestic demand, especially in the fast-growing utility vehicles segment, CV sales volume will grow a moderate 4-6 per cent, 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 per cent, supported by demand for executive and premium motorcycles.”
Retail auto registrations clocked modest growth of 3 per cent in the first seven months of this fiscal (see table in annexure), but there should be a pick up in the remaining five months on higher sales of PVs and two-wheelers during the festive season, and of CVs in the last quarter led by increase in mining and infrastructure activities. The OEMs have increased prices by 2-5 per cent during the past few quarters (5-14 per cent in fiscal 2023). This, along with the full-year impact of price hikes in the previous years, will also support revenue growth of auto dealers this fiscal. No further price hikes are anticipated due to easing input prices.
Another positive factor is premiumisation. The share of utility vehicles and premium motorcycles and scooters, in particular, is rising as consumers increasingly prefer value-added vehicles with premium safety features. Operating profitability of auto dealers will remain stable at 3.5-4.0 per cent, supported by moderate revenue growth and steady contribution (10-15 per cent) of the more profitable ancillary sales (service, spare parts and insurance). 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. That said, the report suggests a watch on sluggishness in rural demand and inventory with dealers.