Passenger vehicle dealers expected to see 20-22% revenue growth this fiscal: CRISIL

Passenger vehicle (PV) dealers are expected to lead the recovery among all automobile dealers. PV dealers are expected to witness 20-22 per cent revenue growth this fiscal to reach almost pre-pandemic levels, stated a report by CRISIL. Two-wheeler dealers, in comparison, will take a year or so longer to reach the pre-pandemic levels. Commercial dealers will also see below pre-pandemic level revenues this fiscal.
 
Anuj Sethi, Senior Director, CRISIL Ratings said, “PV dealers seem to be recovering faster compared with other categories, riding on higher pent-up demand and preference for personal mobility, especially in urban and semi-urban areas. Slower demand from pandemic-hit hinterland, increased spend on health and price hikes are likely to impact the pace of recovery in two-wheelers (2Ws) dealers.”
 
The CRISIL report stated the pace of recovery could have been swift but second wave dampened prospects. Dealers had to undergo partial shutdown of their showrooms in the first quarter. Even then, automobile dealers’ overall revenues will grow at 20 per cent on a low base. Price hike of 4-6 per cent would also boost revenues, it stated.
 
“Cash flows are expected to gradually recover, and along with controlled channel inventory and limited increase in debt, lend stability to credit profiles this fiscal. A study of 191 automobile dealers rated by CRISIL Ratings indicates as much,” stated the report.
 
Automotive retail registrations plunged in April and May due to localised lockdowns and temporary closures of showrooms amid the second wave. But June saw a sharp recovery on a low base as well as easing of curbs. July too saw the recovery continue. Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka and Rajasthan that account for 43-45 per cent of the total retail automotive retail sales in India had seen some of the strictest restrictions.
 
Auto demand recovery continued from mid-June on the back of reducing COVID-19 cases and increasing pace of vaccination.
 
Intermittent lockdowns in the first quarter is likely to result in recovery of only 50 basis points in operating profitability to 2.5-3 per cent, which is still below the pre-pandemic level of 3-4 per cent. This is because service and spare sales that account for 10-12 per cent of revenues but 25 per cent of operating profits are also witnessing muted recovery.
 
Dealers availed of moratorium and emergency credit facilities last year. This year too, similar support is expected to continue for dealers from OEMs or their captive finance arms until sales recover completely, stated the report.

Gautam Shahi, Director, CRISIL Ratings said, “Overall for auto dealers, key debt metrics such as interest coverage and gearing are seen improving to 2.2-2.4 times and 1.4 times in fiscal 2022, compared to 1.9 times and 1.5 times, respectively, for last fiscal."

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