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A likely surge in freight demand as economic activities return to ‘normal’ will contain the fall in fleet operator revenue to around 15 per cent this fiscal, Crisil Ratings said on Friday. With the gradual unlocking of industrial and economic activities, the fleet utilisation should improve to 80-90 per cent of the pre-pandemic levels during the second quarter, it said.
On the other hand, lower fleet utilisation and limited ability to pass on higher fuel cost will moderate operating profitability by 240-260 basis points (bps), it said in a statement. The analysis is based on Crisil-rated 48 fleet operators predominantly in trucking operations.
“The impact on credit profiles of these operators, however, is expected to be limited over the medium term given the liquidity buffer created by the moratorium on loan repayments allowed by the Reserve Bank of India and the likely rebound in freight demand in the second half of this fiscal,” said Crisil.
While essential goods were allowed to be transported, industrial and economic activities were minimal during the stringent first phase of nationwide lockdown between late March and early May, it noted. Overall, freight demand — which has high correlation with industrial and economic activity — nearly halved in the first quarter, it added.
“With the gradual unlocking of industrial and economic activities, fleet utilisation should improve to 80-90 per cent of the pre-pandemic levels during the second quarter. Demand for diesel has already rebounded 80 per cent and e-way bills generation 90 per cent by July. Recovery to business-as-usual is possible in the third quarter if things keep improving,” said Nitin Kansal, Director, Crisil Ratings.
But improving fleet utilisation alone won’t restore sector profitability, it further stated. “Fuel constitutes more than 50 per cent of the operating cost. While diesel prices are 12-14 per cent higher on-year, freight rates on major metro routes have not yet increased commensurately. Such limited ability to pass on higher cost and sub-optimal load balancing on key routes would keep the profitability of fleet operators under pressure. Operating margin is expected to slip 240-260 bps on-year to approximately 5.3 per cent this fiscal, casting a shadow on their credit metrics,” it explained.
The credit metrics of fleet operators will moderate this fiscal, said Nitesh Jain, Director, Crisil.
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