Outlook for Indian road logistics sector remains stable: ICRA

ICRA Ratings on Tuesday said the outlook for the Indian road logistics sector continues to remain stable, supported by improved economic recovery in September quarter, increased pace of vaccination and decline in fresh COVID-19 cases from June onwards.

Improved economic activities in second quarter of the ongoing fiscal year will spur growth momentum for the road logistics sector in the second half of the year, ICRA said.

The sector witnessed moderation in freight volumes sequentially across different segments (road, rail and sea) in June quarter as the resurgence of COVID-19 cases by the end of 2020-21 stalled the economic recovery that was visible across most sectors during the second half of 2020-21, ICRA said in a statement.

Given the impact of the second wave on most end-user industries, freight movement was affected. This apart, the effect of commodity inflation was significant on the earnings profile of logistics players.

"Stunted demand recovery due to resurgence in COVID-19 cases in Q1 FY2022, led to decline in overall industry revenues by 17.5 per cent Q-o-Q. However, there has been a gradual revival in Q2 FY2022 due to aforementioned factors which is also reflected by steady rise in monthly e-way bill volumes as well as FASTag volumes since May-21.

"We expect a broad-based recovery across end user sectors in H2 FY2022 and accordingly the higher scale of operations is likely to see improved earnings despite the effect of higher operating costs amidst diesel price inflation," it said.

Though business performance remained muted over June quarter 2021-22, the sector is likely to grow between 6-9 per cent in the whole year, in line with ICRA's previous estimates, Suprio Banerjee, Vice President & Sector-Head, ICRA said.

Demand, however, shall remain sensitive to any further external shocks like impact of a further wave, given the sector's vulnerability to economic activity on an aggregate basis, Banerjee added.