Urban demand, easing interest rates, and SUV popularity are expected to drive sectoral momentum
Mumbai, May 15—The Indian passenger vehicle dealership sector is poised for 7–9 percent revenue growth in the current financial year, supported by favourable macroeconomic factors including reduced tax slabs, lower interest rates, and controlled inflation, according to a report released by Crisil Ratings on Thursday.This growth outlook continues momentum, albeit more subdued than the sharp rebound witnessed in the post-pandemic years up to FY24, as volume expansion begins to normalize.
Inventory Pressure Easing but Still Elevated
Crisil highlighted that while inventory levels surged to 50–55 days in FY24, well above the typical 30–35 days, due to aggressive stock pushing by OEMs and slower retail sales, improved demand this fiscal is expected to correct inventory levels by 5–10 days. However, these levels will remain higher than pre-FY24 norms.Rural and Urban Segments to Grow in Tandem
Urban demand is set to remain strong, boosted by higher disposable incomes due to tax revisions, softer borrowing costs, and the sustained popularity of SUVs. In rural markets, a potential normal monsoon and higher minimum support prices are expected to stimulate demand, particularly for small cars."Consequently, we see the industry growing at 7–9 percent this fiscal," said Himank Sharma, Director at Crisil Ratings.
Profitability and Debt Position Improve
Volume growth is projected at 4–6 percent, while realisations are expected to rise by 3–4 percent, aided by OEM price hikes and growing SUV penetration. Ancillary revenue streams such as motor insurance and accessories are also forecast to rise, contributing 11–13 percent to total revenues, an improvement from sub-10 percent levels in previous years.This growth in high-margin segments and a decline in sales promotions (limited mainly to non-peak seasons) is expected to boost operating profit margins to 3.2–3.4 percent, up by 15–20 basis points.
"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," added Ankita Gupta, Associate Director, Crisil Ratings.
Stable Outlook for Dealer Credit Profiles
The report, based on an analysis of around 110 passenger vehicle dealerships across India, concludes that improved operational metrics and controlled capital spending will help stabilize dealers' credit profiles following a dip in FY24 from post-pandemic highs.With a balanced mix of rising volumes, increasing ancillary revenues, and prudent financial management, the passenger vehicle dealership industry appears set for a year of steady and sustainable growth.
