22 - 08 - 2026

Indian PV dealers track for another strong year

Indian passenger vehicle (PV) dealers are on track for another strong year as premiumisation, and periodic price hikes by original equipment manufacturers (OEMs) boost realisations. Further, the GST 2.0-led price reductions introduced last fiscal continue to support volumes.

This follows a 13 per cent growth in last fiscal, when volumes rebounded strongly in the second half after a sluggish first half. Higher volumes, coupled with a growing contribution from ancillary businesses, should further support profitability through better fixed-cost absorption, according to a report by Crisil ratings, based on an analysis of 102 PV dealers.

“The earnings mix of PV dealers is also improving. Sustained vehicle sales growth has expanded the base for ancillary income from insurance, accessories, spares and servicing, increasing its share of revenues by around 200 basis points over the past three years to approximately 16% in fiscal 2026. This share is expected to rise further to 17-18% over the medium term. Together, these factors should lift operating margins to 3.5-3.7% this fiscal, after an improvement of around 20 basis points last fiscal,” Himank Sharma, Director at Crisil Ratings said.

With growth expected to continue, dealers are planning sizeable debt-funded capital expenditure (capex) over the next 2-3 fiscals to expand showroom networks and build electric vehicle (EV) capabilities. However, healthy cash generation and a leaner working capital cycle are expected to absorb much of the funding pressure.

Demand for PVs will continue to be underpinned by structural drivers such as rising disposable incomes, improving road infrastructure, lower interest rates, increasing vehicle penetration and growing ownership of multiple vehicles.

Rural demand could moderate in the second half because of the potential impact of El Niño and elevated fuel prices linked to geopolitical tensions in West Asia. However, these headwinds are expected to be outweighed by underlying structural drivers at least this fiscal. Consequently, PV volumes are expected to grow 8-10 per cent this fiscal.

To top, consumers preferences shifting towards sport utility vehicles and larger models with enhanced features is driving premiumisation. Combined with periodic OEM price hikes, this is expected to increase dealer realisations by 2-3 per cent in this fiscal.

In addition to higher profitability, credit profiles may also receive a leg up from leaner inventory levels, which declined to 30-35 days as of March 31, 2026, from 50-55 days a year earlier. Inventories are expected to remain at around 30 days at the end of fiscal 2027, improving working capital efficiency and limiting incremental borrowing requirements even as expansion investments continue.

“Showroom expansion and the OEM push for dedicated EV outlets will keep capex elevated. Capex intensity measured as capex relative to EBITDA1, is expected to increase to 40-42 per cent in this fiscal, from an average of 38 per cent over the past three fiscals. While a significant portion of this investment will be debt funded, stronger cash accruals and lower inventory requirements should keep leverage comfortable and credit profiles stable,” Rushabh Borkar, Associate Director at Crisil Ratings said.

Accordingly, financial metrics are expected to improve in fiscal 2027, with gearing projected at 1-1.1 times and interest coverage at 3.4-3.5 times, compared with 1.15 times and 3 times, respectively, last fiscal.