Second half of FY20 will see higher freight volumes: ICRA

Ratings agency ICRA has recently stated that the ensuing demand momentum will lead to higher freight volumes in the second half of FY2020 despite weak macroeconomic scenario.

A statement from the agency has even predicted that the domestic logistics sector will grow at 8-10% over the medium term with the outlook remaining largely stable.

According to ICRA, the festive season, anticipated revival in infrastructure spending post-monsoon and improvement in receivable cycle of contractors will help stabilise the sector and drive demand.

“We expect the sector to continue to outpace the GDP growth over the medium-term, which apart from demand-side factors would also be supported by supply-side positives like emergence of integrated logistics players, investments in infrastructure development – warehouses and inter-modal transport hubs and capacity augmentation being undertaken by large logistics players,” said Shamsher Dewan, Vice President, ICRA Ratings.

“ICRA expects the Indian logistics industry to continue evolving/being shaped in the medium term as reflected by the on-going trends. This includes trends like the shift towards organized players post GST and E-way bill implementation, focus on multi-modal offerings, increasing interest by private equity and foreign players in the space, the emergence of e-commerce logistics requirements, focus on warehousing and cold chain services, and increased adoption of technology,” Mr Dewan added.

According to the statement, industry capex towards capacity augmentation (fleet, warehousing, cold storage, terminals etc) and investments in technology will improve service offerings at an estimate of  INR 9-11 billion annually (which translates into 2-3% of operating income).

“The credit metrics of ICRA’s sample of logistics companies are anticipated to remain comfortable,” the statement added.

However, on the contrary, another ICRA’s analysis shows that 12 large logistics players in Q1 FY20 has indicated a slowdown to 7% as compared to 11% in Q4 FY19 and 10% in Q1 FY19.

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