Slow lane: Lower profitability and inventory rise will keep dealers’ working-capital debt elevated.
| Photo Credit: PTI
Automobile dealers’ revenue growth is expected to slow down to between 7-9% this fiscal. According to Crisil, after a healthy 14% rise last fiscal, the revenue growth will enter a slow lane. Higher discounts and offers by Original Equipment Manufacturers (OEM) and dealers over the past few months will reduce dealer profitability. Further, lower profitability and an increase in inventory will keep working-capital debt elevated for dealers this fiscal.
“Moderation in sales volume growth to 6-7% this fiscal (8% last fiscal) will be led by the PV and CV segments, while two-wheelers ride well. PV volume may grow slower at 3-5% on a high base of the past three years. CV sales are seen flattish, again on an increased base created by the volume growth momentum of the past 2-3 fiscals, amid healthy demand from the infrastructure sector. Two-wheelers may provide some respite growing by 8-10% on a low base backed by recovery in rural and semi-urban markets following a likely normal monsoon this season,” saidMohit Makhija, Senior Director, Crisil Ratings.
The Federation of Automobile Dealers Association flagged the rise in PV inventory levels and approached Society Of Indian Automobile Manufacturers to assist in regularising the stocks. With an inventory up to 72 days worth ₹70,000 crore, the body plans to approach financiers asking them to stop overfunding the dealers.
“We expect inventory to ease a bit in the second half as sales pick up in the festive season amid higher discounts and offers. Yet, it will end higher than normative levels this fiscal, too,” Crisil said in the report.
(The writer is with The Hindu Businessline)