Road transportation sector rebounds; outlook revised to Stable: ICRA

Our Bureau Hyderabad | Updated on April 01, 2021

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The country’s logistics sector has witnessed a significant sequential recovery after experiencing severe disruption in Q1 FY2021, on account of the nation-wide lockdown.

This had created demand and supply-side challenges which eased in subsequent months as economic activity recovered. As the lockdown-related restrictions eased, the freight availability for logistics players also improved. ICRA has therefore revised the outlook on the sector to Stable from Negative.

According to Rohan Kanwar Gupta, Assistant Vice President & Sector Head, ICRA Ratings, “As the economy opened up and industrial, manufacturing, construction and consumption activities picked up pace, freight availability also improved, aiding recovery in the sector. Freight rates also held up in this period.”

“While freight volumes in Q3 FY2021 were supported by the historically strong festive period, the sector sustained its volume growth even after the season ended, giving comfort regarding the sustainability of the recovery,” Gupta added.

The recovery has also been visible across other modes of transportation as well including rail and seaways freight traffic.

Overall, the aggregate revenues of ICRA’s sample of logistics companies recovered both sequentially and Y-o-Y in Q3 FY2021, growing 17 per cent over Q3 FY2020 levels and 19 per cent sequentially. The recovery was visible across the various modes of logistics activity.

For Q4 FY2021, the momentum was maintained, with freight volumes continuing to report Y-o-Y growth trends and freight rates remaining firm. The growth trend is expected to continue over the next couple of quarters, with the impact of a low base also starting to kick in.

With the encouraging trends visible so far, ICRA expects that the logistics sector would continue to pare back some of the volumes and revenues lost during the first quarter. With continued economic recovery, the FY2022 growth is likely to be healthy at 10-12 per cent.

“While profitability had come under significant pressure in the first quarter due to subdued asset utilisation and high fixed costs, the same has revived subsequently to a large extent. With cost-control measures undertaken and focus on working-capital management, the sector has been able to alleviate concerns on profitability to a large extent. Given that concerns on the business outlook as well as profitability of the sector has been alleviated majorly, ICRA has revised the outlook on the sector to Stable from Negative earlier,” Gupta sates.

Growth over the medium-term is expected to gain momentum with anticipated increase in demand from segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods coupled with industry paradigm shift towards organised logistics players post GST and E-way bill implementation.

Published on April 01, 2021

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