New Delhi [India], July 13 : The sales volume of used cars in India is expected to cross 6 million units this fiscal driven by value-conscious demand, rising digital adoption and better access to finance, the credit rating agency Crisil Rating said in a report.
This has lifted the used-to-new ratio in car sales to 1.4 from less than 1 five years ago, with the volume growing more than twice as fast.
After a tepid 5 per cent volume growth seen between fiscal 2017-24, used vehicle sales grew at a strong 8 per cent last fiscal and is poised to grow up to 10 per cent this fiscal too, said the credit rating firm.
The market value of these used cars is estimated to be around Rs 4 lakh crore, nearly matching that of new car sales.
The organised players in the segment have been incurring high operational cost towards refurbishment, logistics and financing as the sector is in an expansion mode, resulting in continued cash losses.
However, strong revenue growth is expected to drive breakeven at the operating profit level over this and the next fiscal. Until then, credit profiles of players will largely depend on timely fund-raising and sustenance of adequate liquidity to support growth.
Anuj Sethi, Senior Director, Crisil Ratings said, "The improvement in the used-to-new car sales ratio to 1.4x from under 1.0x five years ago signals a structural shift, driven by rising consumer confidence and digital adoption. The supply too remains strong with average age of used cars steadily dropping and is expected to reach around 3.7 years, reflecting quicker upgrade cycles and growing preference for utility vehicles, mirroring new car trends."
The report further added that there is significant headroom for growth as India's used-to-new car sales ratio of 1.4 times still lags mature markets such as the US (2.5 times), UK (4.0 times), Germany (2.6 times) and France (3.0 times).
The segment, which saw volume remain stable even during the pandemic and semiconductor shortage that disrupted new car production is expected to remain resilient as prolonged rare earth magnet shortages delay new car deliveries, prompting buyers to opt for pre-owned cars and gain quicker access.
Besides, first-time buyers have a wider range of used car models to choose from, supported by healthy new car sales in the post-pandemic period. To top, improving access to vehicle finance, through lender-platform partnerships and underwriting, driven by artificial intelligence, is likely to support this shift.
Strong growth has led to expansion of organised players in the used car segment even as profitability remains a challenge.
Poonam Upadhyay, Director, Crisil Ratings, said, "High cost of customer acquisition, logistics and refurbishment continues to weigh on the operating margin, which remains thin or negative for many players. However, the shift towards integrated service offerings including inspection, refurbishment, financing, insurance, and doorstep delivery, along with tighter cost control, should help narrow the losses down gradually. If the current momentum on cost agility sustains, most players are likely to achieve an operating breakeven over the next 12-18 months."
The report stated that most players have sufficient cash reserves from earlier funding rounds to meet their operational expenses and capex of Rs 800-1,000 crore this fiscal, focused on scaling inspection hubs and strengthening technology infrastructure.
Organised players have collectively raised over Rs 14,000 crore via equity since fiscal 2019, though over the past two fiscals they have shifted focus to enhancing profitability and efficiency and have been selective in fund-raising.
Bank credit, which remains constrained by the ongoing cash burn, should pick up, especially for inventory-led players with tangible collateral, as per the report.
Looking ahead, the used car market is expected to remain structurally steady, but availability of quality inventory will bear watching, the Crisil Ratings said.
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