Revenue, profitability of auto dealers to rebound to pre-Covid levels next fiscal

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The overall revenue and operating profits of automobile dealers are set to scale back to pre-Covid levels next fiscal, with 20-22% revenue growth and 50-100 basis points (bps) improvement in operating margin, a study by CRISIL Ratings Ltd showed.

Revenues, which were significantly impacted in fiscals 2020 and 2021, will see a steep recovery due to improved demand for automobiles across segments. 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, the report added.

“PV and 2W dealers are expected to see revenue growth of 20-22% and 15-17%, respectively, in fiscal 2022,” said Gautam Shahi, Director at CRISIL Ratings.

“Healthy rural demand and increasing preference for personal mobility will drive growth for PVs and 2Ws.”

Revenue growth for commercial vehicle (CV) dealers is expected at 35-40% in fiscal 2022, supported by improving economic activity, increase in budget allocation for infrastructure, and low base effect, Shahi added.

Recovery in new vehicle sales, and ancillary revenues (through service, spare parts and insurance at 10-12% of revenue and nearly 25% of operating profit) would also help restore operating profitability to pre-pandemic levels of 3-4% for automobile dealers.