COVID-19: Domestic logistics sector likely to see 6-8 pc decline in FY21, says ICRA

The domestic logistics sector is likely to witness a 6-8 per cent decline in the current fiscal on account of COVID-19 outbreak, rating agency ICRA said on Wednesday.

The rapid rise of COVID-19 pandemic and a 40-day lockdown is adversely impacting the logistics sector, which has seen a sharp fall in freight availability because of restrictions on production of non-essential goods and shortage of fleet for movement of essential goods owing to dearth of drivers, thereby resulting in spike in truck rentals, ICRA said in a statement.

"The pandemic induced nationwide lockdown has further accelerated the ongoing slowdown in the Indian macroeconomic conditions resulting in subdued freight availability. Consequently, in FY2021 too, the ratings agency expects a contraction of 6-8 per cent Y-o-Y in revenue of its sample of logistics companies," ICRA said.

In Q3 FY2020, revenue of ICRA's sample of 12 large logistics players had declined by 2.6 per cent year-on-year (Y-o-Y) as compared to a growth of 18.6 per cent in Q3 FY2019 and 1.9 per cent in Q2 FY2020, in line with the continued moderation in GDP growth, which hit a 27-quarter low of 4.7 per cent, resulting in subdued freight availability, the statement said.

ICRA said it expects the trend to continue in Q4 FY2020 and Q1 FY2021 with a greater degree of subdued performance.

Muted consumer demand in sectors such as automotive, FMCG, capital goods and retail, coupled with the slowdown in production of bulk industrial commodities, would adversely impact the growth of the sector.

Shamsher Dewan, Vice President, ICRA Ratings said, "With the likelihood of lockdown being lifted gradually and muted recovery in industrial activity, the logistics sector including warehousing sector is likely to witness sharp demand contraction in the near-term.

"In our view, while the entire value chain in logistics, right from transportation to warehousing would be adversely impacted, entities with asset-heavy business model will see a greater impact owing to high fixed costs," he added.

Further, the immediate term growth prospects of the sector also remain subdued owing to the outbreak of the COVID-19 pandemic, which has exacerbated the Indian macroeconomic growth scenario, he said.

Within the industry, segments such as fleet owner-cum-operators, warehousing and Container Freight Stations (CFS) would see sharp decline in asset utilization and in return weak financial performance, the statement said.

Furthermore, the small fleet operators would be the most vulnerable owing to limited liquidity and financial flexibility.

While RBI's forbearance initiative and toll exemptions provide some relief, limited fleet utilization in view of low margins would have an overwhelming impact on cash flows of fleet owners in the near-term, it said.