Revenue expected to increase 7-9% as volume growth stabilizes while inventory levels remain elevated.
15 May 2025 | 1414 Views | By Shruti Shiraguppi
Passenger vehicle (PV) dealerships in India are expected to see revenue growth increase by approximately 100 basis points this fiscal year compared to last year, according to a new analysis released by Crisil Ratings today. The growth will be driven by modest revival in sales volume while realisations remain rangebound, ...
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Passenger vehicle (PV) dealerships in India are expected to see revenue growth increase by approximately 100 basis points this fiscal year compared to last year, according to a new analysis released by Crisil Ratings today. The growth will be driven by modest revival in sales volume while realisations remain rangebound, following normalization after the strong post-Covid-19 rebound that continued until fiscal 2024.
The analysis of about 110 PV dealers indicates that volume growth of 4-6% coupled with 3-4% increase in realisations will support high single-digit revenue growth. This growth pattern reflects both urban and rural segments expanding simultaneously, with the urban segment continuing to represent about two-thirds of annual demand.
"Increasing urban disposable incomes backed by revision in tax slabs, interest rate cuts and a benign inflation, and sustained popularity of SUVs, will fuel urban demand for PVs. In the rural segment, sales of small cars could see an uptick on expectations of a normal monsoon and improved farm incomes amid higher minimum support prices. Consequently, we see the industry growing at 7-9% this fiscal," said Himank Sharma, Director, Crisil Ratings.
The improved volume projections are expected to benefit dealers in two significant ways. First, it will increase ancillary income while reducing the need for promotions and discounts, helping to lift operating profitability to 3.2-3.4% after it declined by 30-35 basis points last fiscal year. Second, the elevated inventory levels from last fiscal year will moderate somewhat.
Higher volumes will also boost revenues from ancillary services such as motor insurance and accessories sales. Additionally, services and spares revenues will benefit from the high PV sales recorded during fiscals 2022 to 2024. These higher-margin segments are projected to contribute 11-13% of total revenues, compared with approximately 10% or lower during previous fiscal years.
Despite improvements in demand, inventory levels remain a concern. Dealers saw their inventory rise to 50-55 days last fiscal from the normal 30-35 days as retail sales slowed while original equipment manufacturers (OEMs) continued aggressive stock pushes. Although improved demand is expected to result in inventory correction of 5-10 days this fiscal, levels will remain higher than average pre-fiscal 2024 figures.
"With moderate reduction in inventory on-year and limited capital expenditure for new showrooms, debt levels for dealers are likely to decline marginally this fiscal over last. Gearing should improve to 1.0-1.1 times by March 2026 from the peak of 1.2 times seen as of March 2025. Interest coverage is expected to improve to 3.0-3.2 times from 2.9 times last fiscal. Consequently, credit profiles will be stable over the medium term," explained Ankita Gupta, Associate Director, Crisil Ratings.
Looking ahead, key factors to monitor include recovery in retail sales volume, extent of further inventory push by OEMs, and improvements in both urban and rural demand patterns.