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Passenger Vehicle Segment To Lead Sales Recovery To Pre-pandemic Levels: Rating Agency

Revenues for commercial vehicles dealers will remain below pre-pandemic levels this fiscal.

MUMBAI, India — Passenger vehicle dealers are expected to lead a recovery among all automobile dealers sub-segments with 20 to 22 percent revenue growth this fiscal to almost reach pre-pandemic revenue levels of fiscal 2020, rating agency Crisil said on Aug. 23.

Comparatively, due to slower recovery, two-wheeler (2W) dealers will take a year or so longer to reach pre-pandemic sale levels.

Revenues for commercial vehicles dealers will remain below pre-pandemic levels this fiscal despite higher revenue growth due to a low base created by a sharp fall in the last two fiscals, said Crisil.

The pace of recovery could have been swifter. Still, the second wave of Covid-19 infections led to a partial shutdown of dealers’ showrooms in the first quarter of fiscal 2021.

Even so, automobile dealers’ overall revenues will still likely grow at 20 percent on a low base, also supported by 4 to 6 percent price hikes across vehicle segments.

Cash flows are expected to recover gradually. Along with controlled channel inventory and limited increase in debt, lend stability to credit profiles this fiscal, a study of 191 automobile dealers rated by Crisil Ratings said.

Automotive retail registrations plunged in April and May due to localized lockdowns and temporary dealers’ showroom closures amid the intense second wave. June saw a sharp recovery on a low base, and with an easing of curbs, the recovery is seen continuing in July.

The restrictions were mainly imposed in crucial states such as Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka, and Rajasthan, accounting for 43 to 45 percent of total automotive retail sales in India.

Anuj Sethi, Senior Director at Crisil Ratings, said private vehicle dealers seem to be recovering faster than other categories, riding on higher pent-up demand and preference for personal mobility — especially in urban and semi-urban areas.

Slower demand from the pandemic-hit hinterland increased spend on health and prices hikes are likely to impact the pace of recovery in two-wheeler dealers.

“As a result, PV (private vehicles) dealers’ revenues will grow at 20 to 22 percent, well over 15 to 16 percent revenue growth for 2W dealers,” said Sethi.

“CV (commercial vehicles) dealers though will see healthy revenue growth of 28 to 30 percent this fiscal on a low base but will remain below pre-pandemic levels given sharp fall in the previous two fiscals.”

The intermittent lockdowns during the first quarter of this fiscal are likely to result in only 50 basis points recovery in operating profitability to 2.5 to 3 percent this fiscal, which is still below the pre-pandemic level of 3 to 4 percent.

This is because service and spare sales (10 to 12 percent of revenues but 25 percent of operating profits of automotive dealers) are also witnessing muted recovery.

Crisil said sustenance of recovery in demand across segments and normal monsoon would remain monitorable.

The second wave of Covid-19 infections is set to pull down revenue growth of the organized apparel retail sector to 15 to 20 percent this fiscal, as per the Indian Rating agency Crisil Research.

“A slower recovery in revenue will mean the operating margin of apparel retailers will remain moderate at 4 to 5 percent for this fiscal compared with the earlier expectation of 7 to 8 percent,” the research said.

“Retailers may have to take recourse to additional debt to plug near-term cash-flow mismatches which could impact their credit quality. Crisil-rated apparel retailers are expected to be better placed due to strengthened balance sheets supported by equity raise of INR 2,000 crore ($268.82 million) made last fiscal.”

The introduction of the production-linked incentive scheme will also be beneficial for Indian companies, as per Crisil.

“So far, imports have accounted for 75-85% of the total telecom equipment market,” Crisil said in a blog.

“While some global vendor shaves their manufacturing bases in India, majority of the equipment has been imported from East-Asian countries such as China, Malaysia, South Korea, and Vietnam.”

(With inputs from ANI)

Edited by Saptak Datta and Praveen Pramod Tewari