A healthy demand environment for the road logistics industry in FY2024 has been predicted by the rating agency Icra, helped by consistent domestic consumption and investment demand.
On a higher base than in FY2023, the industry’s revenue growth is predicted to be between 6 and 9 percent in FY2024. This growth will be primarily driven by demand from a variety of markets, including e-commerce, FMCG, retail, and industrial goods, as well as the industry’s paradigm shift towards organised logistics players following the implementation of the GST and the e-way bill.
The rating agency anticipates a steady future for the industry.
“Downside risks to the estimates remain from any material tapering of demand due to elevated inflation and interest rates and global supply-demand shifts impacting the Indian economic scenario,” Icra mentioned.
It added that the industry debt coverage metrics are expected to ease marginally in FY2024 compared to the FY2023 levels with a likely contraction in operating margins because of inflationary input cost pressures, primarily elevated crude oil prices and debt-funded capital expenditure for vehicle replacement, required prior to the introduction of the Scrappage Policy along with a high-interest rate regime.
Suprio Banerjee, Vice President and Sector Head, Corporate Ratings, Irca said, “With gradual demand recovery on the back of supportive macro-economic factors, Icra’s sample set witnessed revenue growth of 16 per cent in FY2023 on a YoY basis, amid a low base of FY2022. The operating profit margin, however, contracted to 12.4 per cent in FY2023 compared to 14.0 per cent in FY2022 on account of fluctuations in fuel procurement cost.”
The agency anticipates that, as shown in Q1 FY2024, rising input prices would cause the sector’s overall operating profit margins to somewhat drop to a range of 10.5 to 12.5 percent in FY2024 from 12.4 percent in FY2023.
“The operators’ ability to effect further price hikes to offset input price increases, amid stiff competition, remains a key credit monitorable,” Banerjee stated.
Notably, e-way monthly volumes reported all-time high volumes in August 2023 after being mostly consistent at above 80 million since March 2023, indicating sustained domestic commerce and transportation activity.
“The monthly FASTag volumes have also moved in tandem with the e-way bills, ranging from 285 to 320 million in Q4 FY2023 and Q1 FY2024, with an all-time peak of 335 million in May 2023, reflecting buoyancy in the movement of vehicles,” it added.
The operational margins of the logistics operators were negatively impacted by the lag in price increases notwithstanding the fall in crude oil prices in Q1 FY2024. Concerns were expressed about the logistics players’ capacity to pass on the cost to their consumers as a result of the consequent substantial increase in pricing in Q2 FY2024.
