The growth of the domestic road logistics sector will continue its growth momentum in FY 2023, supported by the accelerated pace of business activity after good growth in 2022. Rating agency ICRA maintains its growth estimate of around 7-9% growth in FY23 over FY22. The opportunity for organized operators to receive a price hike due to fuel price inflation and cost-saving initiatives will support operational profitability in FY23.
Margin business, however, continues to depend on customer attitudes to demand, diesel price fluctuations, and the intensity of competition in the industry. Due to the debt-financed investments required from the start of the phase-out policy and the expected investments related to vehicle replacement due to the rising interest rate, it is expected that the debt coverage indicators in FY23 will weaken slightly compared to FY22 levels.
The implementation of the National Logistics Policy (NLP) aims to promote the smooth movement of goods, address transport challenges and promote digitization and significantly reduce time and costs. It aims to reduce logistics costs by around 13% to 14% of GDP to single digits. This has a positive impact on the road logistics sector, as it reduces over-reliance on road transport through better integration of different modes of transport and in turn, improves demand identification and ensures better availability of trucks. However, implementation remains the key, due to the coordination of multiple agencies, stakeholders, and physical units involved.
Suprio Banerjee, Director and Sector Head, of Corporate Assessments, ICRA Limited, said: “Quarterly revenues in the logistics sector increased by 5.8% in the first quarter of 2012 compared to the last quarter of 2022 due to stable and sustained demand from the business. The turnover remains close to the multi-year high quarterly earnings supported by continued industrial recovery. This is also reflected in the number of monthly electronic invoices and the stability of FASTag volumes in the first quarter of FY23, which will continue in the current quarter in July-August 2022. After 2022, the growth will be 16.5% (compared to the pre-Covid period). Levels) and 5.8% in Q1 FY 2023. The 1st quarter growth, supported by economic recovery and stable freight prices, ICRA expects a growth of the logistics sector of 7-9% per year.
“On the other hand, the price of crude oil, which increased in the last quarter of 2022 due to the conflict between Russia and Ukraine, also affected industrial margins. While the larger players were able to raise tariffs to a large extent in FY22, their continued ability to do the same remains to be seen. Most of the organized players were able to pass on the increase in fuel costs to their customers, which was reflected in total operating profit margins of 14.0% in FY22 and 13.5% in Q1 FY23 compared to 12.1% in FY2021,” he added. ICRA expects the sample’s combined operating profit margin to be in the range of 12-14% in FY23, compared to 14 .0% in FY22. In the medium term, revenue growth would be further fueled by demand from various segments such as e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial products, as well as an industry paradigm shift towards organized logistics, post-GST, and e-way filling out the bill.
In addition, multi-modal offers are likely to gain more acceptance and traction in the future because multi-modal service providers have had greater flexibility. Given these factors and the relatively greater financial flexibility available to large organized players compared to smaller counterparts, there is potential for greater formalization in the sector in the future. Apart from these, timely and effective implementation of the NLP would be a significant key to boosting the industry.