Icra maintains 'stable' outlook for Indian road logistics sector

Domestic rating agency Icra on Tuesday said the Indian road logistic sector is likely to witness healthy growth in FY2022 on the back of demand recovery and improved business activities.

The optimism stems from the favourable scenario wherein most players reported strong growth in freight volumes on a sequential basis in the second quarter of FY'22, and the momentum is likely to continue in the third quarter of the ongoing fiscal.

Domestic rating agency maintained a 'stable' outlook for the Indian road logistic sector.

After a subdued Q1 FY'22 on account of second wave of COVID-19, demand recovery and improved business activities from Q2 FY'22 onwards, led to better asset utilisation, which, along with cost-rationalisation measures, supported the operating margins in the current fiscal, Icra in a statement.

Growth over the medium-term would continue to be driven by demand from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods coupled with industry paradigm shift towards organised logistics players, post the GST and E-way bill implementation.

The sector is also expected to witness some consolidation on account of pandemic-related stress.

However, the threat of a new variant, has the potential to derail the momentum of recovery, if it becomes a source of fresh round of lockdowns/restrictions in the near-term.

"With an accelerated pace of vaccine roll-outs, pent up demand and firm freight rates, driven by high fuel prices, the sector is likely to grow at 13 per cent-16 per cent in FY2022 over FY2021.

"Nevertheless, the propagation of the new Omicron variant is a key monitorable, given the sector's vulnerability to economic activity on an aggregate basis. We expect industry volumes to remain stable in FY2023 as well, with expectation of steady business activities and formalisation of the sector," Suprio Banerjee, Vice President & Sector-Head, Icra Ratings said.