ICRA anticipates solid domestic consumption and investment demand would help the Indian road logistics sector’s demand situation to continue favourable in fiscal 2024 (FY2024), with industry revenue growth predicted to be in the high single digits on an elevated base of FY2023.
However, given the strong correlation between monsoon health and overall economic activity, there are still downside risks to the estimates from any significant tapering of demand caused by a high inflationary and interest rate regime, the emergence of any additional COVID waves, or a subpar monsoon impacting the state of the overall economy.
ICRA stated in a report that even if debt-funded capital expenditure for vehicle replacement was necessary before the launch of the scrappage policy, the cash flows and debt coverage measures are likely to stay comfortable with stable revenues. the press release.
Despite facing some challenges like general inflation, rising fuel prices, a shortage of drivers, etc., the Indian road logistics industry was supported in FY2023, thanks to an accelerated tempo of business activities, improving demand from end-user segments, and favourable realisation.
Vice President and Sector Head for Corporate Ratings at ICRA Limited, Suprio Banerjee, stated: “ICRA anticipates the aggregate operating profit margins of the sample to moderate to 12–14% in FY2024, compared to 14% in FY2022. A crucial credit monitorable is the operators’ capacity to implement additional rate increases to counteract input price rises in the face of fierce competition. In the longer term, demand from a variety of markets, including e-commerce, FMCG, retail, chemicals, medicines, and industrial goods, together with the shift in the industry’s paradigm in favour of organised logistics players, post-GST, and the introduction of e-way bills.
When compared to the second quarter of FY2023, quarterly sales for the logistics industry saw a slight decline of 2% in the third quarter (Q3) of FY2023. Even though there was strong demand for contact-intensive services and a positive mood during the holiday season, economic activity was uneven in Q3 FY2023 after two quarters of sustained demand. We anticipate that Q4 FY2023 revenues would be higher than Q3, helped by favourable demand and realisations. Despite the fact that organised players successfully handled rate increases overall, the 9M FY2023 saw a decrease in margins to 12.3% from 13.8 in the 9M FY2022 due to higher fuel costs, which were insufficiently covered by hire. Charge builds up.
Revenue growth would be fueled in the medium term by demand from a variety of markets, including e-commerce and retail, as well as the industry’s paradigm shift towards organised logistics operators following the implementation of the GST and e-way bill.
Given that players providing multimodal services had greater options, multimodal products are also expected to gain more acceptability and traction in the future. There is a chance that the industry will become more formalised in the future as a result of these considerations and the considerably greater financial flexibility afforded to major, organised participants than to their smaller competitors. In addition to these, the press release stated that prompt and successful execution of measures like the National Logistics Policy in combination with PM Gatishakti’s National Master Plan will be essential to provide the sector the necessary push.