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Automobile dealers’ business returning to pre-Covid levels

Covid 19 pangs over-- Automobile dealers set for better days

With 20-22 per cent revenue growth and 50-100 basis points (bps) improvement in operating margin expected for next fiscal, overall revenue and operating profits of automobile dealers are expected to scale back to pre-Covid levels, a study by Crisil Ratings said.

Revenues, which were significantly impacted in fiscals 2020 and 2021, will see a steep recovery due to improved demand for automobiles across segments, it said, adding that this along with improved ancillary revenues, which is more profitable than vehicle sales, will support overall operating profitability for automobile dealers, and boost cash accruals.

Over the past 12 months, the cost of ownership of passenger vehicles (PVs) and two-wheelers (2Ws) has risen 8-10 per cent following a 15-17 per cent surge in fuel prices, price hikes by original equipment manufacturers (OEMs) to cover Bharat Stage (BS)-VI costs, and costlier raw material. While that affected sales, the nationwide lockdown also slammed the brakes on ancillary revenue.

Recovery in new vehicle sales, and ancillary revenues (through service, spare parts and insurance at 10-12 per cent of revenue and 25 per cent of operating profit) would also help restore operating profitability to pre-pandemic levels for automobile dealers.

“We are seeing a turnaround. PV and 2W dealers are expected to see revenue growth of 20-22 per cent and 15-17 per cent respectively, in fiscal 2022. Healthy rural demand and increasing preference for personal mobility will drive growth for PVs and 2Ws,” Gautam Shahi, Director, CRISIL Ratings said in a statement.