(Commonwealth_ The Indian road logistics industry is projected to experience moderate revenue growth of 3-6% in FY2025, according to ICRA, a prominent credit rating agency. This steady pace is expected due to the limited capacity for players to increase freight rates amidst high inflation and interest rates, as well as the anticipated softening of government capital expenditure during the election period. Despite these challenges, the overall outlook remains stable, bolstered by ongoing economic activity, organized trade traction, and sustained support from various sectors such as e-commerce, FMCG, retail, pharmaceuticals, and industrial goods.
In 9M FY2024, the industry reported modest revenue growth of 2.3% year-on-year, as stated by Suprio Banerjee, VP & Sector Head – Corporate Ratings, ICRA. This growth was moderated by high inflation, an uneven monsoon season, a high-interest rate regime, and a subdued festive season. Consequently, the road logistics sector is projected to experience low single-digit growth of 2-5% in FY2024 due to these factors.
Banerjee further emphasized that the growth in FY2025 would be influenced by high inflation, elevated interest rates, and softening consumer sentiment. Industry operating profit margins have contracted to 11.2% in 9M FY2024, down approximately 150 basis points year-on-year. This contraction is attributed to increased operating costs (excluding fuel) due to the high inflationary environment and pressures on realizations caused by sticky retail diesel rates, which have limited formula-driven price increases.
Despite inflationary headwinds, industry margins are expected to stabilize between 10.5-12.5% in FY2024 and FY2025, compared to 12.4% in FY2023. This is due to the potential benefits of efficiency gains from increasing digitization and the introduction of value-added services by industry players.
ICRA predicts a slight increase in key debt metrics, with Total debt/OPBITDA expected to rise marginally to 1.5x-1.7x in FY2024 from 1.4x in FY2023. This is driven by rising operating costs (excluding fuel) due to sustained high inflation levels and increased debt from capital expenditures on new vehicles and the anticipated rise in lease liabilities from expanding branch networks and technology investments.
E-way bill volumes have remained stable at over 85 million per month over the last four months, following an all-time high of 100 million in October 2023. This reflects robust domestic trade and transportation activities. Monthly FASTag volumes have mirrored e-way bill trends, ranging from 295 to 350 million during the current fiscal period and reaching a peak of 348 million in December 2023.
However, the road logistics industry faces environmental and social risks, as pointed out by Banerjee. Stricter emission control norms may necessitate investments in alternative fuel vehicles or improvements to the current fleet, while also exposing players to potential litigation and penalties due to emissions and waste management issues. Social risks include driver shortages and challenges related to health, safety, and work-life balance for drivers. These risks may lead to financial implications and affect the reputation of industry players.
The Indian road logistics industry is poised for moderate growth while facing various challenges related to inflation, interest rates, and evolving environmental and social issues. Despite these obstacles, the sector remains resilient due to ongoing economic activity and specific opportunities within key sectors such as e-commerce, FMCG, retail, pharmaceuticals, and industrial goods. The industry’s ability to adapt through increasing digitization, value-added services, and efficiency gains aids its stability. Although environmental concerns such as emission control and social factors like driver shortages present risks, the sector’s adaptability and response to changing demands sustain its growth potential.
