'Auto dealers' revenue, profits to reach pre-Covid levels'

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SME Times News Bureau | 11 Mar, 2021
Overall revenue and operating profits of automobile dealers are set to scale back to the pre-Covid levels in FY22, Crisil Ratings said on Thursday.

Accordingly, a study of 191 sector based entities rated by the agency predicted a 20-22 per cent revenue growth and 50-100 basis points (bps) improvement in operating margin expected for next fiscal.

"Revenues, which were significantly impacted in fiscals 2020 and 2021, will see a steep recovery due to improved demand for automobiles across segments.

"This, along with improved ancillary revenues, which is more profitable than vehicle sales, will support overall operating profitability for automobile dealers, and boost cash accruals," said the report.

As per the report, over the past 12 months, the cost of ownership of passenger vehicles (PVs) and two-wheelers (2Ws) has risen 8-10 per cent following a 15-17 per cent surge in fuel prices, price hikes by original equipment manufacturers (OEMs) to cover Bharat Stage (BS)-VI costs, and costlier raw material.

"While that affected sales, the nationwide lockdown also slammed the brakes on ancillary revenue."

According to Gautam Shahi, Director, Crisil Ratings: "We are seeing a turnaround. PV and 2W dealers are expected to see revenue growth of 20-22 per cent and 15-17 per cent, respectively, in fiscal 2022."

"Healthy rural demand and increasing preference for personal mobility will drive growth for PVs and 2Ws. Revenue growth for commercial vehicle (CV) dealers is expected at 35-40 per cent in fiscal 2022, supported by improving economic activity, increase in the Budget allocation for infrastructure, and low base effect."

Besides, the report cited that recovery in new vehicle sales, and ancillary revenues would help restore operating profitability to pre-pandemic levels of 3-4 per cent for automobile dealers.

Furthermore, automobile dealers should benefit from continued OEM support and strong demand recovery post the lockdown.

"Sustenance of recovery in demand across segments, normal monsoon and inventory level at dealers' end will remain monitorable," the report said.

"With improving operating performance, credit ratio is expected to improve next fiscal. This is after two years of weak operating performance which impacted the credit metrics of CRISIL Ratings' rated automobile dealers. This was evident in the credit ratio declining to 0.3 time for the sector for April 2020-January 2021, the lowest in the past five fiscals. Increased support from OEMs and moratorium availed by automotive dealers helped manage liquidity pressures."