OTHER GROUP COMPANIES
market

Accelerated pace of business activities to support healthy yoy growth for road logistics sector in FY22: ICRA

ICRA maintains its Stable outlook for the Indian road logistics sector.

January 05, 2022 11:07 IST | India Infoline News Service
ICRA maintains its Stable outlook for the Indian road logistics sector. The optimism stems from the favourable scenario wherein most players reported strong growth in freight volumes on a sequential basis in Q2 FY2022, with the momentum continuing in Q3 FY2022.  This follows a subdued Q1 FY2022 due to the second wave of Covid-19.

Demand recovery and improved business activities from Q2 FY2022 onwards, led to better asset utilisation, which, along with cost-rationalisation measures, supported the operating margins in FY2022.  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 industry paradigm shift towards organised logistics players, post the GST and E-way bill implementation.

The sector is also expected to witness some consolidation on account of the stress led by the pandemic. However, the threat of a new variant, has the potential to derail the momentum of recovery, if it becomes a source of fresh round of lockdowns/restrictions in the near term.

Mr. Suprio Banerjee, Vice President & Sector-Head, ICRA Ratings says, “Industry revenues reached multi-year high levels in Q2 FY2022 with strong recovery in industrial activities and favourable outlook for several sectors. Monthly FASTag volumes ramped up to its highest level since the pandemic in Oct-2021, with declining Covid infections and the situation moving towards normalcy. With an accelerated pace of vaccine roll-outs, pent up demand and firm freight rates, driven by high fuel prices, the sector is likely to grow at 13%-16% in FY2022 over FY2021. Nevertheless, the propagation of the new Omicron variant is a key monitorable, given the sector’s vulnerability to economic activity on an aggregate basis.  We expect industry volumes to remain stable in FY2023 as well, with expectation of steady business activities and formalisation of the sector.”

Overall, the aggregate revenues of ICRA’s sample of road logistics companies increased on a Q-o-Q basis in Q2 FY2022 by 28.0% over Q1 FY2022. On a sequential basis, monthly FASTag volumes increased by 11% in October 2021 and remained flat in November 2021 and e-way bill volumes grew by 8% in October 2021 and the volumes slowed down post the festive season by 17% in November 2021. On a Y-o-Y basis, the combined volumes for FASTag for October and November 2021 grew by 73% and e-way bill volumes grew by 13%. The volumes are expected to remain stable over FY2022, given the easing of restrictions with lower incidences of fresh cases. However, industry volumes remain sensitive to spread of the new variant and its repercussion on the economy in the near term.

With steep Q-o-Q industry revenue growth in Q2 FY2022, the OPM expanded sequentially by ~390 bps. ICRA expects the margins at 11 – 13% in FY2022, against 12.1% in FY2021. Organised players have the ability to command pricing premium on account of the rise in fuel prices, while maintaining the cost rationalisation measures to support the operating profitability in FY2022.

Growth over the medium term would continue to be driven by demand from the varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods, coupled with industry paradigm shift towards organised logistics players, post the GST and E-way bill implementation. Furthermore, multi-modal offerings are likely to gain increased acceptance and traction going forward, given that players offering such services had more flexibility and hence, were better placed to service their customers during the lockdown phase.

“Given these factors, and the relatively higher financial flexibility available to large, organised players vis-à-vis their smaller counterparts, there is potential for increased formalisation in the sector, going forward, “added Mr. Banerjee.

OPEN A DEMAT ACCOUNT & Get
FREE Benefits Worth 5,000

FEATURED ARTICLE

BLOGS

Open Demat Account

  • 0

    Per Order for ETF & Mutual Funds Brokerage

  • 20

    Per Order for Delivery, Intraday, F&O, Currency & Commodity