Indian Road Logistics Sector Braces for Sluggish Growth in FY2025, New Study Reveals

In a recent analysis by ICRA Limited, the Indian road logistics industry is anticipated to witness a subdued growth trajectory in the fiscal year 2025. The assessment projects a modest 3-6% revenue expansion, citing several factors constraining the sector’s momentum.

According to Mr. Suprio Banerjee, Vice President & Sector Head – Corporate Ratings at ICRA Limited, the industry faces a confluence of challenges. These include the limited capacity of players to escalate freight rates, an anticipated decrease in government spending during elections due to Model Code of Conduct stipulations, and a downturn in consumer demand sentiments amidst elevated inflation and interest rates.

Despite these hurdles, the sector’s outlook remains stable, propelled by sustained economic activity, increased traction in organized trade, and continued support from diverse segments such as e-commerce, FMCG, retail, pharmaceuticals, and industrial goods.

Mr. Banerjee elucidated on the industry’s performance, noting a marginal 2.3% revenue growth in the first nine months of fiscal year 2024. This tepid expansion was attributed to subdued demand influenced by factors like inflation, erratic monsoons, high interest rates, and a relatively subdued festive season. With FY2023 setting a high benchmark, ICRA estimates a low single-digit growth of 2-5% for FY2024. Looking ahead, FY2025 is projected to see a slightly improved growth rate within the range of 3-6%, influenced by persistent challenges like high inflation, interest rates, and fluctuating consumer sentiments.

Operating profit margins for the industry contracted to 11.2% in 9M FY2024, down approximately 150 basis points year-on-year. This decline was driven by rising operating costs (excluding fuel) due to inflation and pricing pressure amidst stagnant retail diesel rates. ICRA anticipates margins to remain within the range of 10.5-12.5% in both FY2024 and FY2025, despite efficiency gains from digitalization and value-added services.

Debt metrics are also under scrutiny, with the Total Debt/OPBITDA ratio expected to have marginally moderated to 1.5x-1.7x in FY2024 from 1.4x in FY2023. Rising operating costs, fueled by persistent inflation and increased debt from capital expenditures and technological investments, contribute to this trend.

On the operational front, monthly e-way bill volumes have displayed resilience, maintaining levels above 85 million over the past four months, following a record high of 100 million in October 2023. Concurrently, monthly FASTag volumes have mirrored this trend, ranging from 295 to 350 million in the current fiscal, reaching a pinnacle of 348 million in December 2023, reflecting the continuity of business operations.

In addition to economic challenges, road logistics players confront environmental and social risks. Stringent emission control norms necessitate investments in alternative fuel vehicles or fleet upgrades. Moreover, litigation and penalties stemming from environmental violations pose financial implications and reputational risks. Social concerns such as driver shortages and issues related to health, safety, and work-life balance further compound the industry’s challenges.

As the Indian road logistics industry navigates through economic headwinds and operational complexities, stakeholders are compelled to adopt resilient strategies to sustain growth amidst adversity.

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