Indian road logistics sector to remain favourable in FY24: ICRA

In Q3 FY23, the logistics sector saw a marginal contraction of 2% in quarterly revenues compared to Q2 FY23 due to uneven economic activity.

Autocar Pro News Desk By Autocar Pro News Desk calendar 17 Apr 2023 Views icon2272 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp

Rating agency ICRA predicts that the demand scenario for the Indian road logistics sector will remain favourable in FY24, with the industry revenue growth expected to be in high single digits on an elevated base of FY23.

This is supported by stable domestic consumption and investment demand. However, there are downside risks to these estimates due to high inflationary and interest rate regimes, the emergence of any further Covid waves, or a sub-par monsoon impacting the overall economic health. Despite these risks, cash flows and debt coverage metrics are expected to remain comfortable with stable earnings.

The Indian road logistics sector faced headwinds in FY23 such as general inflation, higher fuel prices, non-availability of drivers, etc. but it was still supported by an accelerated pace of business activities, improving demand from end-user segments, and favourable realisations. Additionally, debt-funded capital expenditure for vehicle replacement required before the introduction of the scrappage policy is likely to be manageable.

Suprio Banerjee, Vice President and Sector Head – Corporate Ratings, ICRA, said: “ICRA expects the aggregate operating profit margins of the sample to moderate to 12 percent-14 percent in FY24, compared to 14.0 percent in FY22. The operators’ ability to effect further rate hikes to offset input price increases amid stiff competition remains a key credit monitorable. Revenue growth over the medium term would continue to be driven by demand from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods coupled with the industry’s paradigm shift towards organised logistics players, post-GST, and e-way bill implementation.”

In Q3 FY23, the logistics sector saw a marginal contraction of 2 percent in quarterly revenues compared to Q2 FY23 due to uneven economic activity, despite robust demand for contact-intensive services and upbeat sentiment during the festive season.

However, ICRA expects Q4 FY23 revenues to be better than Q3, supported by favorable demand and realisations. While organised players managed rate hikes to a large extent, margins moderated to 12.3 percent in 9M FY23 over 13.8 percent in 9M FY22, due to increased fuel charges not being adequately covered by hire charge increases.

FASTag and E-way bill volumes peaked in December 2022 but sequentially decreased in January and February 2023 post the festive season impact in Q3. On a Y-o-Y basis, FASTag volumes for January and February 2023 grew by 24 percent and E-way bill volumes grew by 19 percent. The volumes are expected to remain stable over FY24, given the expectation of a favourable demand scenario in the near term.

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