Revving Up: Anticipated Growth in Domestic Passenger Vehicle Sales

The domestic passenger vehicle dealership sector is set to grow by 7-9% this fiscal, attributed to recent tax revisions, lower interest rates, and low inflation, ratings agency Crisil reported.

Crisil indicated a 100 basis points uptick in year-on-year revenue due to a modest increase in sales volume, though realisations may remain steady.

Dealers experienced a surge in inventory levels to 50-55 days last fiscal, exceeding the usual 30-35 days, as retail sales decelerated while OEMs aggressively pushed stock. Improved demand is expected to correct inventory by 5-10 days, though it will still surpass pre-fiscal 2024 levels.

Sharma noted that urban disposable incomes, influenced by tax adjustments and interest rate reductions, combined with an affinity for SUVs, will continue to drive urban demand for passenger vehicles. Meanwhile, rural sales could rise with a normal monsoon and higher farm incomes.

An uplift in volume will offer dealers two advantages: elevated ancillary income and reduced promotional costs, enhancing operational profitability to 3.2-3.4%. With no significant showroom expansion anticipated, debt levels are projected to decline.

Crisil's coverage spans over 110 passenger vehicle dealers, with volume growth anticipated at 4-6% this fiscal. An increase in realisations of 3-4% is expected, driven by OEM price hikes and sustained SUV popularity.

Dealers anticipate high single-digit revenue growth, driven by balanced growth in both urban and rural markets. Ancillary revenues from insurance and accessories are expected to rise, yielding higher margins than previous fiscals.

Increased revenue visibility and a thrust towards high-margin segments will limit promotions to non-peak seasons, enhancing operating profit margins by 15-20 basis points.

Associate Director Ankita Gupta highlighted the expected slight decline in dealer debt levels due to reduced inventory and limited capital expenditure for new showrooms this fiscal.

(With inputs from agencies.)