Indian Road Logistics Industry Set for Moderate Growth in FY2025

Anushka Khare Posted on: 2024-04-09 08:20:00 Viewer: 2,502 Comments: 0 Country: India City: New Delhi

Indian Road Logistics Industry Set for Moderate Growth in FY2025

New Delhi, India (Urban Transport News): ICRA, a leading credit rating agency, forecasts a modest growth trajectory for the Indian road logistics industry in the fiscal year 2025. Anticipated revenue expansion is projected to range between 3-6%, with operating profit margins expected to remain relatively stable at 10.5-12.5%. This forecast comes amidst persisting concerns regarding cost inflation and other economic factors impacting the sector.

The outlook for FY2025 suggests a restrained growth pace for the Indian road logistics sector. Factors contributing to this projection include the limited capacity of industry players to raise freight rates, an anticipated decrease in Government capital expenditure during the election period due to regulatory constraints, and a slowdown in consumer demand due to prevailing high inflation and interest rates.

However, despite these challenges, the sector's outlook remains stable, supported by sustained economic activity, growing organized trade, and continued demand from key segments such as e-commerce, FMCG, retail, pharmaceuticals, and industrial goods.

Mr. Suprio Banerjee, Vice President & Sector Head – Corporate Ratings at ICRA Limited, provided insights into the industry's performance based on ICRA's sample set. He noted a modest revenue growth of 2.3% in the first nine months of FY2024, attributed to various factors including subdued demand amid high inflation, uneven monsoon patterns, and a tepid festive season.

Given the elevated base of FY2023, ICRA expects a low single-digit growth rate of 2-5% in FY2024. Looking ahead to FY2025, the projected growth rate is anticipated to be in the range of 3-6%, influenced by factors such as inflation, interest rates, and consumer sentiment.

Operating profit margins contracted to 11.2% in 9M FY2024, primarily due to increased operating costs driven by inflation and pressure on realizations. Despite efficiency gains from digitalization and value-added services, ICRA expects margins to remain within the 10.5-12.5% range in FY2024 and FY2025.

Key debt metrics, such as Total debt / OPBITDA, are expected to marginally moderate to 1.5x-1.7x in FY2024, reflecting rising operating costs and increased debt from capital expenditure and technology investments.

Despite challenges, the industry has demonstrated resilience, with monthly e-way bill volumes remaining stable above 85 million in the past four months. The continuity in business operations is further evidenced by monthly FASTag volumes, which have mirrored e-way bill trends.

In addition to economic challenges, road logistics players face environmental and social risks. Compliance with tightening emission control norms necessitates investments in alternative fuel vehicles or fleet upgrades. Moreover, concerns regarding environmental impact and workforce issues, such as driver shortage and health and safety, pose additional risks to the industry's financial health and reputation.

While the Indian road logistics industry navigates through economic uncertainties and operational challenges, its resilience and adaptability continue to underpin its stability amidst evolving market dynamics.

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