NEW DELHI: The steady unlocking of the economy and a subsequent spike in demand may mitigate the destructive impact of the lockdowns on fleet operators this fiscal year (FY21), with revenues expected to decline by a lower-than-expected 15 per cent, according to a report from CRISIL.
However, with overall demand expected to remain lower than pre-COVID levels, lower capacity utilisation and substantially higher fuel prices are likely to take a large chunk out of the segment’s profits.
Lockdowns declared beginning late-March this year had brought most transportation and economic activity to a grinding halt. Even though unimpeded movement of cargo vehicles was allowed almost immediately after the lockdown announcement, the large scale shutdown of factories and the consequent plunge in industrial demand grounded most of India’s medium to heavy-duty truck fleet.
While two-thirds of India’s truck fleet was left idle during April, the unlocking exercises in beginning late May loosened the stranglehold on economic activity and resulted in an upsurge in demand. This spike is likely to help limit the impact of the earlier disruption. According to CRISIL, overall freight demand nearly halved in the first quarter (April-June period).
"But, a likely surge in freight demand as economic activities return to normal will contain the fall in fleet operator revenue to around 15 per cent this financial year. On the other hand, lower fleet utilisation and limited ability to pass on higher fuel cost will moderate operating profitability by 240-260 bps," it said.
CRISIL Ratings director Nitin Kansal said, "With the gradual unlocking of industrial and economic activities, fleet utilisation should improve to 80-90 per cent of the pre-pandemic levels during the second quarter."
CRISIL also pointed out that recovery to business-as-usual status is possible in the third quarter if things keep improving. But, improving fleet utilisation alone is not expected to restore the sector’s profitability. Fuel alone costs more than 50 per cent of the operating costs and fuel prices are currently at all-time highs due to massive duty hikes by the government.
Recovery likely in the third quarter, says CRISIL
With the gradual unlocking of industrial and economic activities, fleet utilisation should improve to 80-90 per cent of the pre-pandemic levels during the second quarter, said Kansal, adding recovery is possible in the third quarter if things keep improving