MUMBAI: The road-based logistics sector is expected to grow 7-9 per cent this fiscal on favourable demand but margins may be under pressure due to higher fuel cost, says a report.
However, operators' debt coverage metrics are expected to marginally weaken in FY23 from FY22 levels.
This will be largely due to the debt-funded vehicle replacement capex induced by the upcoming scrappage policy, along with the rising interest rate regime, rating agency Icra said in the report on Thursday. It has a stable outlook for the sector.
The agency expects the aggregate operating profit margin to remain in the range of 12-14 per cent in FY23 compared to 14.2 per cent in FY22.
Accelerated pace of business activities and lower lockdown-linked restrictions from H2 of FY22 have aided faster revenue recovery in FY22 and the growth momentum is likely to continue with an estimated 7-9 percent uptick in top line in FY23 year-on-year, the report said.
The ability of the organised players to command pricing premia on account of the rise in fuel prices, driven by the fallout of the Ukraine war while maintaining the cost rationalisation measures shall support the industry's operating profitability, it noted.
However, the report also said the margins will continue to depend on consumer demand, diesel prices and competitive intensity.
ALSO READ | Infrastructure, logistics to lead the way
According to Suprio Banerjee, a Vice President and Sector Head at the agency, the sector saw moderate 2 percent rise in quarterly revenue in Q4 of FY22 over Q3, due to the third wave of the pandemic. But this is still close to a multi-year high quarterly.
On an annualised basis, volume for Fastag grew 145 per cent and e-way bill volume rose 84 per cent in May 2022, clearly indicating the rising demand and utilisation levels.
Demand from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods coupled with the industry's paradigm shift towards organised logistics players, post GST and e-way bill implementation will continue to drive revenue growth in the medium term.