Road logistics sector to grow 7-9% in FY23; outlook stable, says ICRA

India’s road logistics sector is expected to grow in FY2023 supported by the accelerated pace of business activities, following a healthy growth in FY2022, according to rating agency ICRA. The rating agency maintains its growth estimates of 7%-9% in FY2023 over FY2022.

The report said that organised player are well placed to command a price premium due to high fuels prices, while retaining cost reduction initiatives that would support operating profitability in FY2023.

Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, said, “The logistics sector’s quarterly revenues increased by 5.8% in Q1FY23 compared to Q4FY22, helped by solid and sustained demand from the manufacturing sector.”

Banerjee, further, said, “The revenue remains close to multi-year high quarterly revenues, supported by sustained recovery in industrial activities. The higher revenue 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.” 

Banerjee added that 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.

However, debt coverage metrics will marginally weaken in FY2023 compared to FY2022 levels due to rising interest rates and debt-financed capital expenditures for vehicle replacement required prior to the commencement of the scrappage policy.

National Logistics Policy

The Indian government introduced the National Logistics Policy on September 17 aimed at easing the movement of goods and boosting the trade sector in the Indian economy. The policy aims to reduce the cost of logistics from 14-18% of GDP to global best practices of 8% of GDP by 2030. The policy also wants to ensure that logistical issues are minimised, exports grow manifold, and small industries and the people working in them benefit significantly.

The new logistics policy is good for the road logistics sector, as it shall reduce the overdependence on road through better integration of different modes of transport and improve demand identification, thereby enabling better availability of trucks. ICRA pointed out that the implementation of the policy is important, given the coordination of multiple agencies, stakeholders, and physical entities involved.

Sector outlook

The rating agency expects the aggregate operating profit margins of the sample to remain in the range of 12-14% in FY2023, compared to 14% in FY2022. ICRA said that the sector is expected to witness revenue growth over the medium term, driven by demand from varied segments like 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.

Moreover, the report said that multimodal offerings are likely to gain traction and higher acceptance among various clients as players offering multimodal services have more flexibility. All these factors along with relatively higher financial flexibility, there is potential for increased formalisation in the sector. In addition, effective an timely implementation of the National Logistics Policy would provide the requisite impetus to the sector.

Stocks To Watch

Some of the top logistics companies in India are as follows: Delhivery, Container Corp, Blue Dart Express, Allcargo Logistics, Transport Corp of India, VRL Logistics, Mahindra Logisistics, Gateway Distriparks, Sindhu Trade Links, Gati, Lancer Container Lines, Snowman Logistics, Ritco Logistics, Accuracy Shipping, Arshiya, Shreeji Translogistics, JITF Infra Logistics, Tiger Logistics, Maheshwari Logistics, DJ Mediaprint & Logistics, AVG Logistics, Sanco Trans, Shree Vasu Logistics, North Eastern Carrying Corporation and DRS Dilip Roadlines.