Cargo Talk Feb2021 (2) - Flipbook - Page 42
INDUSTRY REPORT
Domestic road freight
sector to contract by 12%
According to the recent report released by ICRA on domestic road transportation sector, smart sequential recovery is visible in
the logistics sector Q2 FY2021 onwards, but sustainability of recovery remains critical. Logistics companies have also managed
to arrest extent of earnings contraction through adoption of cost control measures, freight rate hikes, etc.
CT Bureau
he Indian logistics sector
has witnessed a sequential
recovery in months following
the severe disruption in Q1 FY2021 on
account of the nation-wide lockdown.
The pandemic-induced disruptions had
created demand-side and supply-side
challenges, however, as the restrictions
eased and economic activity revived,
the freight availability for logistics
players also improved. Although the
Y-o-Y volume and revenue contraction
continued even in Q2 FY2021, the
recovery has been faster than expected,
with volumes reverting to yearago levels by September 2020 and
improving thereafter.
t
Shamsher Dewan
Vice President
ICRA Ratings
According to Shamsher Dewan,
Vice President, ICRA Ratings, “As the
economy opened up and industrial,
manufacturing, construction and
consumption activities picked up pace,
freight availability also improved,
aiding recovery in the sector. Freight
rates also held up in this period. As
Despite the sequential
improvement reported in
Q2 FY2021, ICRA expects
the pressure on earnings
and credit metrics of
logistics entities, especially
the smaller unorganised
players, to continue over
the near-term
such, although revenues continued
to contract in Q2 FY2021, the pace of
contraction mellowed down. As per
industry estimates, freight volumes
reverted back to year-ago levels by
the end of Q2 FY2021, and have
improved further in the third quarter,
with festive-led demand and specific
sectors like e-commerce leading the
growth. This trend was visible in E-way
bill and Fastag data, which reached prepandemic levels in September 2020 and
posted Y-o-Y growth in October and
November 2020.”
With the encouraging trends visible
so far, ICRA expects that the logistics
sector would be able to pare back
some of the volumes and revenues lost
during the first quarter, with rural-led
sectors and sectors such as e-commerce,
pharmaceuticals and auto aiding
recovery. Accordingly, ICRA expects
the revenue of its sample of logistics
companies to decline by 12-14% Y-o-Y
42 CARGOTALK
FEBRUARY - 2021
in FY2021, despite the 18% contraction
reported in H1 FY2021. Nevertheless, in
the absence of a successful commercial
vaccine, the possibility of a second or
third wave, and possible lockdowns
imposed to combat it, poses potential
downside risks to these estimates.
In terms of profitability, logistics
companies have been able to arrest the
extent of earnings contraction to a large
extent, supported by rationalisation of
fixed overheads and implementation
of cost-control initiatives. Accordingly,
the aggregate OPM of ICRA’s sample
expanded by 900 bps on a sequential
basis and 100 bps on a Y-o-Y basis during
this period. However, with the impact
of several cost-control initiatives like
employee salary reduction, rental waivers,
reduction in lorry hire charges, etc., being
temporary in nature, and with the firming
up of diesel prices, ICRA believes that
margins are likely to moderate from the
highs of 9.6% reported in Q2 FY2021.
Accordingly, ICRA expects the aggregate
operating profit margins of its sample to
be in the range of 6.0-8.0% in FY2021, as
against 8.8% in FY2020.
“Despite the sequential improvement
reported in Q2 FY2021, ICRA expects
the pressure on earnings and credit
metrics of logistics entities, especially
the smaller unorganised players, to
continue over the near-term, given the
challenges of overcapacity prevalent in
the system even prior to the pandemic.
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