The domestic road transport sector is likely to contract by up to 20 per cent on account of COVID-19 pandemic-induced challenges, rating agency Icra said on Thursday.
It has also revised the outlook on the logistics sector from ”Stable” to ”Negative”, given the prevailing circumstances and its impact on the industry metrics.
The rapid rise of COVID-19 pandemic and subsequent restrictive measures implemented by the central and state governments to contain the disease have adversely impacted the prospects of the Indian logistics sector, especially the road freight transportation movement, Icra said in a statement.
The implementation of the 40-day nationwide lockdown aggravated the prevailing softness in the Indian economic activity, resulting in a decline in freight availability during Q4 FY2020, which further contracted sharply in Q1 FY2021, it said.
“In FY2021, Icra expects a contraction of 18-20 per cent year-on-year in aggregate revenues of its sample of logistics companies. Additionally, the near-term profitability metrics are anticipated to remain under pressure given the subdued fleet utilisation levels in light of muted freight availability, and continued high fixed costs such as driver salaries, truck EMIs and maintenance costs,” the agency said in the statement.
Accordingly, the outlook on the sector has been revised to ”Negative” from ”Stable”, it added.
“The implementation of nationwide lockdown to contain the Covid-19 spread resulted in disruption in supply-chains across sectors, restrictions on cross-border movement and dearth of availability of drivers and thereby led to contraction in revenue of the logistics sector in Q4 FY2020; and subsequently in Q1 FY2021,” Shamsher Dewan, Vice President, Icra Ratings said.
Further, the near-term growth prospects of the sector also remain subdued owing to the evolving COVID-19 situation, which has exacerbated the Indian macroeconomic growth scenario, he said, adding that accordingly, the domestic logistics sector is expected to contract sharply in the current fiscal.
Icra noted that the freight movement during the period was impacted by restrictions on cross-border movement, shortage in availability of drivers and manpower due to large-scale migration and lack of availability of return load.
In addition to the impact on the road logistics sector, the macro-economic slowdown and evolving COVID-19 situation also had a bearing on rail and seaway freight traffic, with freight volumes contracting by 21.3 per cent and 19.7 per cent y-o-y, respectively, during Q1 FY2021, it said.
The decline in the freight volumes for the entire modal mix was more pronounced in the month of April 2020, owing to complete lockdown measures in place for the entire month, it said.
However, with gradual easing of lockdown limitations, railways and seaways freight volumes have revived to 85-90 per cent of pre-COVID levels in June 2020.
The financial performance of Icra”s sample of ten large logistics was also adversely impacted in Q4 FY2020, as aggregate revenues of players declined by 5.3 per cent y-o-y, in line with the continued moderation in GDP growth, which hit an 11-year low of 3.1 per cent, resulting in subdued freight availability.
The moderation is expected to continue in Q1 FY2021 with a greater degree of subdued performance, and the ratings agency expects GDP to contract by 25 per cent during the period.
It said consumer demand continues to remain weak, especially in segments like automotive, capital goods, and retail coupled with the slowdown in the production of bulk industrial commodities, which is likely to impact growth of the sector.
With intermittent lockdowns still in place in several pockets across the country and muted recovery anticipated in the industrial activity, the logistic sector – including warehousing – is likely to witness sharp demand contraction in the near-term, Icra said.