With the logistics sector projected to record a growth of 7-9 percent in the current fiscal, the rise in the prices of fuel and other commodities owing to the Russia-Ukraine war keeps margins for the industry players “sensitive to risks”, ICRA report said on Thursday.
The report by the credit rating agency also estimated that the sector’s growth stood at around 14-17 percent in 2021-22 over pre-COVID levels, adding that the momentum is expected to continue in this fiscal as well.
As per the report, the medium-term revenue growth of the sector will be driven by demand from varied segments such as e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods coupled with the industry’s paradigm shift towards organized logistics players post GST and E-way bill implementation.
The report said that multi-modal offerings are likely to gain increased acceptance and traction going forward, given that players offering multi-modal services had more flexibility.
Given these factors and the relatively higher financial flexibility available to large organized players vis-à-vis their smaller counterparts, there is potential for increased formalization in the sector going forward, the report noted.
Recovery in demand across industries, increased pace of vaccination, and rapid abatement of the third wave, which allowed for the quick lifting of restrictions, this has helped sustain improvement in freight movements In the last few months, ICRA said.
However, the recently elevated prices of commodities prices and firming freight rates are the key near-term headwinds.
The margin movement shall continue to depend on consumer demand sentiments, the trend in diesel prices, and the competitive intensity within the industry, the report said, adding that while the larger players have managed to hike rates to a large extent in FY2022, their sustained ability to do the same is to be tested.
“Quarterly revenues for the logistics sector breached multi-year highs during Q2 FY2022 and Q3 FY2022 supported by a sustained recovery in industrial activities. The impact of the third wave was minimal as the hospitalization rates were low. While there were regional restrictions for a brief period, manufacturing, construction activities, and movement of goods were permitted due to which the impact on commercial traffic was limited,”Suprio Banerjee, Vice President, and Sector-Head at ICRA Ratings