Passenger vehicle segment to lead sales recovery to pre-pandemic levels: Crisil

New Delhi: Passenger vehicles (PV) dealers are expected to lead a recovery among all automobile dealers sub-segments with 20 to 22 per cent revenue growth this fiscal to almost reach pre-pandemic revenue levels of fiscal 2020, rating agency Crisil said on Monday.

Comparatively, due to slower recovery, two-wheeler (2W) dealers will take a year or so longer to reach pre-pandemic sale levels. Revenues for commercial vehicles (CV) dealers will remain below pre-pandemic levels this fiscal despite higher revenue growth due to a low base created by sharp fall in last two fiscals, said Crisil.

The pace of recovery could have been swifter but for the second wave of Covid-19 infections which led to partial shutdown of dealers’ showrooms in the first quarter of fiscal 2021.

Even so, automobile dealers’ overall revenues will still likely grow at 20 per cent on a low base, also supported by 4 to 6 per cent price hikes across vehicle segments.

Cash flows are expected to gradually recover, and along with controlled channel inventory and limited increase in debt, lend stability to credit profiles this fiscal. A study of 191 automobile dealers rated by Crisil Ratings indicated as much.

Automotive retail registrations plunged in April and May due to localised lockdowns and temporary dealers’ showroom closures amid the intense second wave. June saw a sharp recovery on a low base and with easing of curbs, the recovery is seen continuing in July.

More so, because the restrictions were mainly imposed in key states such as Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka and Rajasthan which account for 43 to 45 per cent of total retail automotive retail sales in India.

Anuj Sethi, Senior Director at Crisil Ratings, said PV 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 pandemic-hit hinterland, increased spend on health and prices hikes are likely to impact the pace of recovery in 2W dealers.

“As a result, PV dealers’ revenues will grow at 20 to 22 per cent, well over 15 to 16 per cent revenue growth for 2W dealers,” said Sethi.

CV dealers though will see healthy revenue growth of 28 to 30 per cent this fiscal on a low base but will remain below pre-pandemic levels given sharp fall in the previous two fiscals.”

The intermittent lockdowns during the first quarter of this fiscal is likely to result in only 50 basis points recovery in operating profitability to 2.5 to 3 per cent this fiscal, which is still below the pre-pandemic level of 3 to 4 per cent.

This is because service and spare sales (10 to 12 per cent of revenues but 25 per cent of operating profits of automotive dealers) are also witnessing muted recovery.

Crisil said sustenance of recovery in demand across segments and normal monsoon will remain monitorables.