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Fleet operators set to expand their fleet size despite higher interest rates, says CRISIL

The revenue growth of the sector is projected to fall between 10-12 per cent this fiscal year in back of the surging demand from road-freight intensive sectors.

Fleet operators in India will continue to reinforce their operational fleets this fiscal. The revenue growth of the sector is projected to fall between 10-12 per cent this fiscal year in back of the surging demand from road-freight intensive sectors, said CRISIL’s report.

The increased demand has enabled the fleet operators to offset the soaring repayment burden as the interest rates on loans have increased.

An analysis of 45 major fleet operators, rated by CRISIL Ratings, representing a fifth of the industry by size, indicated that the credit profiles will remain stable despite the increase in debt and leverage owing to the fleet additions, said the report. The rated operators are likely to increase their fleet size by up to 15 per cent by the end of this fiscal.

Rahul Guha, Director, CRISIL Ratings said, “Freight rates are passed on with a lag to consignors because fleet operators try to strike a balance between rate hikes and fleet utilisation. With fleet utilisation seen 7-8% higher, and freight rates mirroring retail fuel prices, revenues for fleet operators will grow 10-12% this fiscal, while operating margins will remain stable at 7.5-8.0% levels.”

With an increased demand from industries such as steel, cement, and coal, the fleet utilisation has increased to 88 per cent last fiscal from 75 per cent in fiscal 2021. With prolonged economic recovery and minimal Covid-19 disruptions, the fleet utilisation is expected to reach up to 95 per cent.

Himank Sharma, Director, CRISIL Ratings said, “Curtailed fleet expansion during the past two fiscals had helped operators conserve cash. Spending on fleet expansion now will moderate their debt metrics, yet credit profiles will remain stable because interest coverage and debt service coverage ratios are expected at well over 3.5 times and 1.6 times, respectively, this fiscal. That compares with 4.6 times and 1.9 times, respectively, last fiscal.” 

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