STOCK MARKET BSE NSE

High fuel rates, low demand set to dwindle truck operators' profit for current fiscal

CRISIL Ratings pointed out that recovery to business-as-usual status is possible in the third quarter if things keep improving.

Published: 29th August 2020 12:18 PM  |   Last Updated: 29th August 2020 12:18 PM   |  A+A-

Trucks move slowly in a queue at Burari, during the ongoing nationwide COVID-19 lockdown, in New Delhi

Trucks move slowly in a queue at Burari, during the ongoing nationwide COVID-19 lockdown, in New Delhi. (File Photo)

By Express News Service

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



Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

IPL_2020
flipboard facebook twitter whatsapp