ICRA expects favourable demand outlook for the road logistics industry in FY24

Revenue growth in the industry is expected to be 6-9% in FY2024 on a higher base in FY2023, driven primarily by demand from diverse segments.

Autocar Pro News Desk By Autocar Pro News Desk calendar 11 Oct 2023 Views icon733 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
ICRA expects favourable demand outlook for the road logistics industry in FY24

ICRA expects a favourable demand outlook for the road logistics industry in FY2024, supported by stable domestic consumption and investment demand.

Revenue growth in the industry is expected to be 6-9% in FY2024 on a higher base in FY2023, driven primarily by demand from diverse segments such as e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods, as well as the industry's paradigm shift towards organised logistics players, post-GST, and e-way bill implementation. ICRA anticipates the sector's outlook to stay stable.

 Any major reduction in demand due to elevated inflation and interest rates, as well as global supply-demand movements affecting the Indian economic landscape, remain downside risks to the forecasts. The industry's debt coverage metrics are expected to ease marginally in FY2024 compared to FY2023 levels, with a likely contraction in operating margins due to inflationary input cost pressures, primarily elevated crude oil prices, and debt-funded capital expenditures for vehicle replacement, which were required prior to the Scrappage Policy's implementation, as well as a high interest rate regime.

Suprio Banerjee, Vice President & Sector Head, Corporate Ratings, ICRA Limited,said: “With gradual demand recovery on the back of supportive macro-economic factors, ICRA’s sample set witnessed revenue growth of 16% in FY2023 on a YoY basis, amid a low base of FY2022. The operating profit margin, however, contracted to 12.4% in FY2023 compared to 14.0% in FY2022 on account of fluctuations in fuel procurement costs." . "As witnessed in Q1 FY2024, ICRA expects the aggregate operating profit margins for the sector to marginally moderate to a range of 10.5–12.5% in FY2024, from 12.4% in FY2023, owing to elevated input costs. The operators’ ability to effect further price hikes to offset input price increases, amid stiff competition, remains a key credit monitorable.”

 According to an ICRA statement, e-way monthly volumes have been mostly consistent at above 80 million since March 2023, with all-time high volumes reported in August 2023, indicating sustained domestic commerce and transportation operations. Monthly FASTag volumes have moved in lockstep with e-way bills, ranging from 285 to 320 million in Q4 FY2023 and Q1 FY2024, with an all-time high of 335 million in May 2023, indicating buoyancy in vehicle movement. 

 Despite the fall in crude oil prices in Q1 FY2024, the logistics providers' operating margins were hurt due to the lag in pricing increases. The consequent substantial increase in prices in Q2 FY2024 sparked concerns about logistics players' capacity to pass on the cost to their customers. 

 “Further, road logistics players also remain exposed to environmental and social risks. Tightening emission control norms necessitate alternative fuel vehicle investments or investments in the current fleet. They are also exposed to litigation/penalties arising from issues related to harmful emissions and waste, which may lead to financial implications and impact reputation. The social risk includes driver shortage, health, safety, and quality of work-life balance for drivers” Banerjee added. 

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