Indian Road Logistics Industry Revenues to Grow at 3-6% in FY25: ICRA

the Indian road logistics industry
ICRA expects the revenues of the Indian road logistics industry to remain range-bound and grow at a sedate pace of 3-6% in FY2025. This projection is due to the limited ability of players to increase freight rates, expected softening in Government capex during elections, and moderation in consumer demand sentiments amid high inflation and interest rates.

Despite these challenges, the outlook for the sector remains stable. This stability is fueled by sustained momentum in economic activities, enhanced traction of organized trade, and continued support from various segments such as e-commerce, FMCG, retail, pharmaceuticals, and industrial goods.

Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, said, “ICRA’s sample set witnessed a modest revenue growth of 2.3% in 9M FY2024 on a YoY basis amidst tapering demand due to high inflation, an uneven monsoon, a high interest rate regime and relatively muted festive season. Thus, on an elevated base of FY2023, ICRA estimates a low single digit growth of 2-5% in FY2024. The growth for road logistics sector in FY2025 is expected to be in the range of 3-6%, owing to the impact on demand from high inflation, high interest rate regime and soft (though improving) consumer sentiment. The industry operating profit margin contracted to 11.2% in 9M FY2024 (down ~150 bps YoY), on account of increase in operating costs (ex-fuel) due to the high inflationary regime, and pressure on realisations, given the sticky retail diesel rates, limiting any formula-driven price rise. ICRA expects the margins to remain in the range of 10.5-12.5% in FY2024 and FY2025 over 12.4% in FY2023 amidst inflationary headwinds and despite benefits of efficiency gains due to increasing digitalisation and value-added service offerings of industry players. Key debt metrics like Total debt / OPBITDA is expected to have moderated marginally to 1.5x-1.7x in FY2024 from 1.4x in FY2023 with rising operating costs (ex-fuel), given the persistently high inflation levels and increase in debt due to debt-funded capital expenditure for new vehicles, and anticipated rise in lease liabilities due to expanding branch network and technology investments.”
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