Domestic road logistics sector witnesses strong rebound over H2 FY2021; likely to grow by 6-9% in FY2022: ICRA

Domestic road logistics sector witnesses strong rebound over H2 FY2021; likely to grow  by 6-9% in FY2022: ICRA

The strong recovery in the logistics sector over H2 FY2021, which is a stark contrast to the sharp decline in revenues, as reported by the sector Earnings reported for Q1 FY2021. In Q4 FY2021, the logistic sector saw sequential growth of 9% These sectors have seen sustained recovery. Some industry players reported their highest levels of performance in the past. Quarterly revenues in Q4 FY2021. It saw a sharp drop in earnings and revenues over Q1 FY2021 Due to disruptions in demand-supply due to the nationwide lockdown. Inclusion of piecemeal relaxations Lockdown-related restrictions and adjustment to the New Normal, Revived Economic Activity and Improved Freight The players were able to access the internet.

Srikumar Krishnamurthy (Vice President & Cohead Head, ICRA Ratings), stated that The sector continued to a Strong rebound was facilitated by the recovery across industries as well as improving freight availability. Demand is increasing Recovery sustaining post festive season and Q4 FY2021, some of the logistic sector's activities were halted. The fiscal closed with revenue growth of 4% in FY2021, compared to 4% contraction. ICRA had anticipated this earlier. Although freight rates returned to pre-Covid levels they remained firm due to the increase Fuel costs. The firming up of the economy was evident in the steady growth in E-way bills and freight volumes. Sector's performance in Q4 FY2021

Many logistics companies reported steady growth in freight volumes Y-o–Y over Q3 FY2021 & Q4 FY2021. Similar trends were reported by rail freight traffic, which reported Y-o-Y increases of 13% in Q4 FY2021 compared to 11% Q3 FY2021 respectively. Even more impressive was the March 2021 report by railways, which saw them surpassing their previous record of highest monthly freight volumes. Previous highs in January 2021. However, due to supply-side/infrastructure limitations, the growth trajectory has also been reverted from From November 2020, the highest monthly freight volumes ever recorded in March 2021.

The aggregate revenue of ICRA's logistics companies increased by 42% Y-o-Y in Q4 FY2021 Comparable to the previous fiscal, and 9% sequentially. The recovery was evident in all modes of logistics Activity The initiative was a success for both Full Truck Load and Less Than Truck Load businesses as well as Supply Chain Management companies. a rise in manufacturing activity and consumer demands. The express cargo segment is also growing. Reports of improved momentum are supported by increased traction from e-commerce. The express segment is still underperforming. Dependence on document movement (especially air freight) continues to be a problem as offices are still being built. To open completely.

The rebound of Covid-19 cases at the end of Q4 FY2021 has slowed growth in freight volumes. Mr. Suprio Benderjee, Vice ICRA Ratings President and Sector Head said: "With the sudden surge in Covid cases during the second wave, growth The slowdown in momentum is evident. This is evident in a decrease in E-way bill volumes as well as road freight. Volumes over April-May 2021. The sector will recover faster than in the previous fiscal, according to us. Lockdown restrictions are relaxed and vaccination drives improved. It is a delicate business however. Performance over Q1 FY2022 will likely arrest annual growth at 6-9%, as opposed to an earlier estimate of 10-11. FY2022, 12% A positive is the continued cost-restraining strategy that supports earnings to some degree. ICRA maintains a stable outlook for the logistics industry. Players' ability to guarantee a To maintain profitability, it is crucial that freight rates are increased in the medium term. This will be in spite of rising fuel prices.

Logistics companies were also able to stop the margins from shrinking to a significant extent, which has helped to increase profitability. Supported by aggressive rationalisation and cost-control, the extent is possible despite higher fuel prices Initiatives. In Q4 FY2021, the aggregate OPM of ICRA’s sample increased by 3.3% on a Y–o-Y basis. However, the Due to rising diesel prices, OPM contracted 30 basis points Q-o-Q during Q4 FY2021.

However, the impact of cost-control measures such as salary reduction and rental waivers, etc., was evident. These were Temporary in nature, negate in the near term margin levels for FY2022. The problem is made worse by the steady rise in diesel prices. ICRA anticipates that the aggregate will remain stable. Operating profit margins for its sample will be between 9-9.5% in FY2022, and 9.9% in FY2021. Logistics The ability of companies to raise freight rates is a key factor in determining whether they can sustain profitability in the short term.

Demand from segments such as FMCG and e-commerce will continue to drive growth in the medium term. Retail, chemicals, pharmaceuticals, and industrial goods are all affected by the industry's paradigm shift toward Organised logistics players, after the GST and E-way bill implementations. Multimodal offers are also available Multimodal service providers will likely increase their acceptance and traction. They had greater flexibility and were therefore better able to serve their customers during the lockdown. Given These factors are reflected in the relative greater financial flexibility of large, organised players compared to smaller ones. Similar to their counterparts, there is potential to increase formalization of the sector moving forward.