Car dealers to register rise in revenue on higher sales in 2025-26: Report

New Delhi, May 15 The domestic Passenger Vehicle (PV) dealership industry will see a revenue growth of around 100 Basis Points (BPS) in the current financial year, supported by a revival in sales volume even as realisations remain range-bound, according to a Crisil Ratings report released on Thursday.

Crisil Ratings director Himank Sharma said, “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,” he added.

The 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 BPS last fiscal.

Second, elevated inventory levels from last fiscal will moderate. That, and no major Capex expected for showroom expansion, will reduce debt levels, the report states.

The Crisil Ratings analysis based on 110 PV dealers indicates that their credit profiles will remain stable after moderating last fiscal.

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 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.

Higher volumes will also lift ancillary revenues from sales of motor insurance and accessories. Also, services and spares revenues will benefit from the high PV 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.

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 sale promotion costs should provide a 15-20 BPS uptick to operating profit margins to 3.2-3.4 per cent this fiscal.

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.

This fiscal, while improved demand will result in inventory correction by 5-10 days, it will remain higher than the average levels seen prior to fiscal 2024, the report said.

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