
Within the industry, segments such as fleet owner-cum-operators, warehousing and Container Freight Stations (CFS) segment would see a sharp decline in asset utilization and in return weak financial performance. Furthermore, small fleet operators would be the most vulnerable owing to limited liquidity and financial flexibility. Overall, while RBI's forbearance initiative and toll exemptions provide some relief, but limited fleet utilization in view of low margins would have an overwhelming impact on cash flows of fleet owners in the near-term.
In Q3 of the 2020 fiscal, revenue of ICRA's sample of 12 large logistics players had declined by 2.6% Y-o-Y as compared to a growth of 18.6% in Q3 FY2019 and 1.9% in Q2 FY2020, in line with the continued moderation in GDP growth, which hit a 27-quarter low of 4.7%, resulting in subdued freight availability. ICRA expects that this trend is likely to continue in Q4 FY2020 and Q1 FY2021 with a greater degree of subdued performance. Muted consumer demand in sectors such as automotive, FMCG, capital goods and retail coupled with the slowdown in the production of bulk industrial commodities would adversely impact the growth of the sector. The nationwide lockdown has further accelerated the ongoing slowdown in the Indian macroeconomic conditions resulting in subdued freight availability. Consequently, in FY2021 too, the ratings agency expects a contraction of 6-8% Y-o-Y in revenue of its sample of logistics companies.
However, despite the contraction in revenues and negative operating leverage, the operating profitability of the leading logistics players benefitted from operational efficiencies and adoption of cost-rationalization measures during Q3 FY2020. Accordingly, operating profitability margin (OPM) of the sample improved sequentially to 8.8% in Q3 FY2020 from 8.6% in Q2 FY2020. However, subdued demand scenario coupled with increased competitive intensity in sectors like E-commerce logistics and Air Cargo, constrained the performance of the industry. “Over the near-term, ICRA believes the profitability of logistics operators to be impacted on account of the coronavirus outbreak and lockdown, which has significantly impacted freight availability and fleet utilisation. Further, adverse impact from Covid-19 pandemic poses a downside risk on the credit metrics of ICRA's sample of logistics companies,” he added.