India's road logistics sector to witness 7-9% YoY growth in FY23: ICRA

Demand is likely to remain sensitive to any further waves or new virus variants, given the sector’s significant linkage to economic activity on an aggregate basis. The ability of the organised players to command pricing premiums on account of the rise in fuel prices, driven by the fallout of the Russia-Ukraine conflict, while maintaining the cost rationalisation measures shall support the industry operating profitability in FY23.

The margin movement shall, however, continue to depend on consumer demand sentiments, trend in diesel prices and the competitive intensity within the industry. Debt coverage metrics are expected to marginally weaken in FY23 compared to FY22 levels owing to the expected debt-funded capital expenditure for vehicle replacement required prior to introduction of the scrappage policy along with the rising interest rate regime, ICRA said in a media release.

Suprio Banerjee, vice president & sector-head, ICRA Ratings, said: “Quarterly revenues for the logistics sector reported a moderation of 2 per cent in Q4 FY22 compared to Q3 FY22, owing to the third wave of COVID. However, it still remains close to multi-year high quarterly revenues, supported by sustained recovery in industrial activities. While there were regional restrictions for a brief period, manufacturing, construction activities and movement of goods were permitted due to which the impact on commercial traffic was limited. This is also reflected by the stability in monthly e-way bill volumes as well as FASTag volumes during Q4 FY22, which also continues in the current quarter for Apr-May 2022.

“Following a 16.5 per cent growth in FY22 (over pre-COVID levels) on the back of revival in economic activities, firm freight rates and low-base, ICRA expects the logistics sector to grow by 7-9 per cent YoY in FY23. However, the overhang of any further COVID waves looms on the sector in case the recent rise in COVID infections in certain pockets of the country spreads nationwide. Margins shall also remain sensitive to risks stemming from a continued rise in commodity and fuel prices owing to the fallout of the Russia-Ukraine conflict.”

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 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-à-vis their smaller counterparts, there is potential for increased formalisation in the sector going forward, the release added.

ALCHEMPro News Desk (KD)