A favourable monsoon season and the government's focus on capital formation are additional factors likely to support revenue growth. ICRA maintains a 'Stable' outlook for the sector, driven by government measures and policies as well as stable demand from segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods.
Profitability challenge
Organised players are anticipated to maintain a pricing premium amid inflationary conditions, which should support operating profitability in FY2025. However, profitability will likely remain range-bound and below the peak levels seen in FY2023. Debt coverage metrics are expected to remain comfortable, despite some anticipated increase in debt levels due to capital expenditure for new vehicles, an expanding branch network, and technology investments. ICRA projects the interest coverage and total debt/OPBITDA to range from 7.0x-8.0x and 1.4x-1.7x, respectively, in FY2025, compared to 7.6x and 1.6x in FY2024.
Srikumar Krishnamurthy, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA said, "ICRA’s sample set witnessed modest revenue growth of 4.6% in FY2024 over FY2023. The growth was subdued on account of a relatively muted demand amid high inflation, an uneven monsoon, a relatively lackluster festive season and the rising interest rate regime."
"The operating profit margin eased to 11.2% in FY2024 (down ~120 bps from FY2023) on account of rising operating costs (ex-fuel) amid the high inflation levels and stiff competition in the sector. In Q1 FY2025, the revenues grew by ~7% with operating margins of ~10-11%. ICRA expects the industry operating profit margins to remain in the range of 11-12% in FY2025, with the organised players expected to maintain the pricing premium amid an overall inflationary cost scenario," he added.
Resilient growth in e-way and FASTag volumes
The e-way monthly volumes have shown steady growth over the years and have remained largely stable in the last four months at above 100 million, with August 2024 reporting an all-time high of 105 million. This signifies resilient domestic trade and transportation activities. The monthly FASTag volumes have also moved in tandem with the e-way bills, ranging from 295 to 350 million in FY2024 and the current fiscal year, with an all-time peak of 348 million in December 2023, reflecting business continuity.
"Road logistics players also remain exposed to environmental and social risks. Tightening emission control norms necessitate investments in either alternative fuel vehicles or in the current fleet. They are also exposed to litigation/penalties arising from issues related to harmful emissions and waste, which may lead to financial implications and impact reputation. The social risk includes driver shortage, health, safety, and quality of work-life balance for drivers," Krishnamurthy said.
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