While the recovery in the overall automobile sector has been impressive, the commercial vehicles segment is likely to recover slowly. Commercial car dealers are likely to see slow revenue growth in FY22.
The automobile sector is set to witness an increase in revenue due to strong growth in the passenger vehicles segment. Passenger vehicles dealers are likely to witness revenue growth of 20-22 percent, said analytical firm Crisis Ratings.
This is good news for the sector as the data indicates that passenger vehicle sales will again reach pre-pandemic levels in FY22. While passenger vehicle sales have improved sharply, two-wheeler dealers may witness slower growth in sales due to lower demand.
While the recovery in the overall automobile sector has been impressive, the commercial vehicles segment is likely to recover slowly. Commercial car dealers are likely to see slow revenue growth in FY22.
Crisil said the automobile sector witnessed a swift recovery after the first wave but added that the recovery was hampered by local restrictions during the second Covid wave.
It may be noted that the second wave of Covid-19 infections led to the partial shutdown of dealer showrooms during the first quarter of this year. Automotive retail registrations plunged in April and May during the intense second wave.
However, there was a sharp recovery in June due to a low base besides the easing of curbs. The recovery momentum continued in July as restrictions were eased in key states like Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka, and Rajasthan. These states account for 43-45 percent of the total retail automotive retail sales in the country.
A gradual reduction in active Covid-19 cases and increased vaccinations drove the recovery in automobile demand from mid-June, said Crisil.
Anuj Sethi, the senior director, Crisil Ratings, said, “Passenger Vehicle dealers seem to be recovering faster compared with other categories, riding on higher pent-up demand and preference for personal mobility, especially in urban and semi-urban areas.”
“Slower demand from the pandemic-hit hinterland increased spend on health and prices hikes are likely to impact the pace of recovery in two-wheelers (2Ws) dealers. As a result, PV dealers’ revenues will grow at 20-22 percent, well over 15-16 percent revenue growth for 2W dealers,” he added.
“CV dealers, though, will see healthy revenue growth of 28-30% this fiscal on a low base, but will remain below pre-pandemic levels given sharp fall in the previous two fiscals.”
While business performance was severely impacted during the last fiscal year, dealers had opted for a moratorium and emergency credit facilities offered by banks. They also got support from captive finance arms of original equipment manufacturers (OEMs).
Gautam Shahi, the director, Crisil Ratings, said, “Controlled inventory levels at auto dealers’ end due to lower dispatches from OEMs, and recovery in the margin will ensure limited increase in short-term debt this fiscal. However, slower demand recovery for 2W and CV dealers to pre-pandemic levels will result in relatively gradual improvement in debt metrics for them compared to PV dealers. Overall for auto dealers, key debt metrics such as interest coverage and gearing are seen improving to 2.2-2.4 times and 1.4 times in fiscal 2022, compared to 1.9 times and ~1.5 times, respectively, for last fiscal.”
