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However, downside risks to the estimates remain from any material tapering of demand due to high inflationary and interest rate regime, the emergence of any further COVID waves, or a subpar monsoon impacting the overall economic health, given its strong linkage to economic activity on an aggregate basis.
The cash flows and debt coverage metrics are likely to remain comfortable with stable earnings despite debt-funded capital expenditure for vehicle replacement required before the introduction of the scrappage policy, ICRA said in a press release.
Accelerated pace of business activities, improving demand from end-user segments, and favourable realisation supported the Indian road logistics sector in FY2023, despite it having faced certain headwinds like general inflation, higher fuel prices, non-availability of drivers, etc.
Suprio Banerjee, vice president and sector head – Corporate Ratings, ICRA Limited, said: “ICRA expects the aggregate operating profit margins of the sample to moderate to 12-14 per cent in FY2024, compared to 14.0 per cent in FY2022. 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.”
Quarterly revenues for the logistics sector witnessed a marginal contraction of 2 per cent in third quarter (Q3) of FY2023 compared to Q2 FY2023. Following two quarters of stable demand, economic activity was uneven in Q3 FY2023 despite robust demand for contact-intensive services and upbeat sentiment during the festive season. We expect the revenues in Q4 FY2023 to be better than Q3, supported by favourable demand and realisations. Though organised players managed rate hikes to a large extent, on an aggregate basis, 9M FY2023 witnessed a moderation in margins to 12.3 per cent over 13.8 per cent in 9M FY2022 on account of increased fuel charges, which were not adequately covered by hire charge increases.
Demand from varied segments including e-commerce and retail, coupled with the industry’s paradigm shift towards organised logistics players, post GST and e-way bill implementation would continue to drive revenue growth in the medium-term.
Furthermore, multimodal offerings are likely to gain increased acceptance and traction going forward, given that players offering multimodal services had more flexibility. Given these factors and the relatively higher financial flexibility available to large, organised players vis-a-vis their smaller counterparts, there is potential for increased formalisation in the sector going forward. In addition to these, timely and effective implementation of initiatives like the National Logistics Policy in conjunction with PM Gatishakti National Master plan would be key to providing the requisite impetus to the sector, the release added.
Fibre2Fashion News Desk (NB)