The revenue growth of auto dealers is expected to slow to 7-9 %t this financial year after a healthy 14 % t last year, due to a moderation in sales volume growth and modest price hikes by car manufacturers, asserted Crisil Ratings.
Lower sales volume growth has led to higher discounts and offers by manufacturers and dealers over the past few months, the rating agency said in a report this week.
While a large part of the impact is borne by the manufacturers, it will still pull down the profitability of auto dealers to 3 % t, a tad lower than the average of 3.5 % t seen in the past three years.
According to the rating agency, lower profitability and an increase in inventory will keep working capital debt elevated for dealers this year as well.
Crisil Ratings has analyzed as many as 110 auto dealers, spanning passenger vehicles (PVs), two-wheelers (2Ws), and commercial vehicles (CVs).
Inventory of passenger vehicle dealers is said to have risen above normative levels to reach 50-55 days at the end of last year.
With sales volume growing at a slower pace (4% t) in the first four months of 2024-25, dealer inventory is estimated to have risen by another 15 days.
Crisil expects inventory to ease a bit in the second half as sales pick up in the festive season amid higher discounts and offers, yet it is estimated that it will end higher than normative levels this year, too.
Price increases will likely be muted at 1-2 %t this year, compared with 4-5 %t last year as dealers offer generous discounts to prevent further pile-up in inventory, Crisil said.
