The logistics sector is projected to record a growth of 7-9 per cent in the current fiscal but the industry players’ margins are likely to remain “sensitive to risks” stemming from a continued rise in oil and commodity prices amid the Russia-Ukraine conflict, according to a report.
The report by credit ratings agency ICRA on Thursday also estimated that the sector’s growth stood at around 14-17 per cent in 2021-22 over pre-COVID levels, adding that the momentum is expected to continue in this fiscal as well.
Revenue growth over the medium-term would continue to be driven by demand from varied segments such as e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods coupled with the industry’s paradigm shift towards organised logistics players post GST and E-way bill implementation, it said.
Furthermore, the report said that multi-modal offerings are likely to gain increased acceptance and traction going forward, given that players offering multi-modal services had more flexibility.
Given these factors and the relatively higher financial flexibility available to large organised players vis-à-vis their smaller counterparts, there is potential for increased formalisation in the sector going forward, the report noted.
In the last few months, there has been a sustained improvement in freight movements aided by recovery in demand across industries, increased pace of vaccination and rapid abatement of the third wave, which allowed for quick lifting of restrictions, among others, ICRA said.
However, it said that elevated commodity prices and firming freight rates are key near-term headwinds.
The margin movement shall continue to depend on consumer demand sentiments, trend in diesel prices and the competitive intensity within the industry, the report said, adding that while the larger players have managed to hike rates to a large extent in FY2022, their sustained ability to do the same remains to be seen.
“Quarterly revenues for the logistics sector breached multi-year highs during Q2 FY2022 and Q3 FY2022 supported by sustained recovery in industrial activities.
“The impact of the third wave was minimal as the hospitalisation rates were low. While there were regional restrictions for a brief period, manufacturing, construction activities and movement of goods were permitted due to which the impact on commercial traffic was limited,” Suprio Banerjee, Vice President and Sector-Head at ICRA Ratings, said.
This is also reflected by the stability in monthly e-way bill volumes as well as FASTag volumes since during January-February months of 2022, he added.
“ICRA expects the logistics sector to have grown by 14-17 per cent in FY2022 (over pre-COVID levels) and the growth momentum is likely to continue in FY2023 with estimated growth of 7-9 year-on-year,” Banerjee said.
According to him, margins, however, shall remain sensitive to risks stemming from a continued rise in commodity and fuel prices owing to the fallout of the Russia-Ukraine conflict.
Overall, the aggregate revenues of ICRA’s sample of nine leading logistics companies increased on a sequential basis in the December quarter of FY2022 by 6.8 per cent over Q2 FY2022.