The introduction of the National Logistics Policy (NLP) aimed at promoting the seamless movement of goods, overcome transport-related challenges, encouraging digitization along with the significant reduction in time and cost, is targeted to reduce the logistics costs from~13-14% of GDP to single digits. This augurs well for the road logistics sector, as it shall reduce the overdependence on road through better integration of different modes of transport and in turn improve demand identification, thereby enabling better availability of trucks. The implementation, however, remains the key, given the coordination of multiple agencies, stakeholders, and physical entities involved.
Commenting further, Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, said, “The logistics sector's quarterly revenues increased by 5.8% in Q1 FY2023 compared to Q4 FY2022, thanks to solid and sustained demand from the manufacturing sector. The revenue remains close to multi-year high quarterly revenues, supported by sustained recovery in industrial activities. This is also reflected by the stability in monthly e-way bill volumes as well as FASTag volumes during Q1 FY2023, which also continues in the current quarter for Jul-Aug 2022. Following a 16.5% growth in FY2022 (over pre-Covid levels) and a 5.8% growth in Q1 FY2023 on the back of a revival in economic activities and firm freight rates, ICRA expects the logistics sector to grow by 7-9% YoY. On the other hand, elevated crude oil prices due to the Russia-Ukraine conflict witnessed from Q4 FY2022 also had an impact on the margins of the sector. While the larger players have managed to hike rates to a large extent in FY2022, their sustained ability to do the same rates remains to be seen. Most of the organised players were able to pass on the increase in fuel cost to its customers as reflected by healthy operating margins of 14.0% in FY2022 and 13.5% in Q1 FY2023 against 12.1% in FY2021.”
- The Indian Road logistics sector is expected to grow by 7-9% YoY in FY2023; however, margins vulnerable to risks stemming from a heightened inflationary fuel cost regime.
- Debt coverage metrics to marginally weaken in FY2023 compared to FY2022 levels, largely due to debt funded vehicle replacement capex induced by the upcoming scrappage policy & rising interest rate regime.
- Introduction of NLP focusing on ease of doing business through technology-enabled initiatives and better integration of different modes transport augurs well for the sector; implementation a key monitorable.