Automobile dealership industry revenues to grow by 11-13% in FY24: Icra

Aided by robust sales, revenues of domestic automobile dealership industry are expected to grow by 11-13 per cent in the current fiscal, rating firm Icra said on Thursday.

The revenue growth this fiscal will be aided by expected 6-9 per cent volume growth and an increase in vehicle prices during the current financial year, it added.

Factors like improving consumer sentiments, as seen through a continued preference for personal mobility and rising disposable income, easing supply-side constraints, better features in the new product models, change in product-mix with increasing skew towards high-priced vehicles, etc., are expected to favourably support the sales growth in the consumer segment, Icra said.

In the commercial segment, improving economic activities, rising spends in infrastructure and mining activities, a stable financing environment shall support the growth, it added.

Potential headwinds could arise from adverse monsoons or the occurrence of the El Nino and its impact on rural demand, supply-related issues, general inflation, and further hardening in financing rates, the rating firm noted.

Segment-wise, demand for commercial vehicles is expected to be supported by replacement demand, pick-up in mining, infrastructure construction activities, and overall healthy fleet utilisation levels, Icra said.

In the passenger vehicle segment, underlying demand trends remain stable, although supply-chain related factors, increase in the cost of ownership, and monsoon performance are key monitorables, it stated.

In the two-wheeler segment, headwinds like elevated ownership costs, inflation, and high financing costs remain a challenge, although demand is expected to recover gradually, Icra said.

"Factors like reduced waiting periods, an increase in operating costs amidst general inflation and competition, a rise in interest costs due to an increase in interest rates, and a rise in working capital loans amidst elevated inventory levels are expected to weigh on the margins in FY2024," Icra Assistant Vice-President and Sector Head Corporate Ratings Nithya Debbadi said.

Nevertheless, the industry's operating margins are expected to be better than the pre-Covid levels, she added.

The rating firm further noted that it expects inventory holding levels to increase as compared to the last two years, and normalise gradually to 40-45 days, going forward.