By Rajat Mishra
The road and logistics sector is expected to grow by 11-13% YoY in FY23, but operating margins of firms are likely to moderate compared to the level in the current fiscal, according to rating agency ICRA. The growth will be supported by a strong demand environment, coupled with continuation of firm freight rates.
“The growth is supported by the base effect to an extent, given that FY2022 had a weak first quarter due to the second wave of Covid-19,” ICRA
Also, the debt coverage metrics are expected to marginally moderate in FY23 and FY24 compared to the FY2022 levels owing to expected debt-funded capital expenditure for vehicle replacement required prior to the introduction of the scrappage policy, along with the rising interest rate regime.
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However, downside risks as highlighted by ICRA is the emergence of any further waves or new variants, as witnessed in a few countries, and its ripple effects on India, given its strong linkage to economic activity on an aggregate basis.
ICRA further expects the aggregate operating profit margins of the sample to moderate to 12%-14% in FY23, compared to 14% in FY22. The operators’ ability to effect further rate hikes to offset input price increases amid stiff competition remains a key credit monitorable.
However, 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, ICRA mentioned
“Quarterly revenues for the logistics sector witnessed a 6.1% growth in Q2 FY23 compared to Q1 FY23, owing to healthy and sustained demand from the manufacturing sector. The revenue remains close to multi-year high quarterly revenues, supported by a sustained recovery in industrial activities,”Suprio Banerjee, VP & sector head – corporate ratings, ICRA, said.
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According to ICRA, this is also reflected in the stability in monthly e-way bill volumes as well as FASTag volumes during Q2 FY2023, which also continued during the Oct-Nov 2022 period. Russia- Ukraine conflict in Q4 of FY22 said to have an impact on the margins of the roads and logistic sector. The larger players continue to manage rate hikes to a large extent in FY2022. However, according to ICRA, their sustained ability to do the same remains to be seen.