The logistics sector is expected to grow 7-9 percent in the current fiscal year, but the margins of industry players are likely to remain “sensitive to risk” due to a continued rise in oil and commodity prices during the the conflict between Russia and Ukraine, according to a report.
Thursday’s report from credit rating agency ICRA also estimated that the sector’s growth in 2021-22 was about 14-17 percent from pre-COVID levels, adding that momentum is expected to continue into this fiscal year.
Medium-term revenue growth would be driven by demand from diverse segments such as e-commerce, FMCG, retail, chemicals, pharmaceuticals and industrial goods, coupled with the industry’s paradigm shift towards organized logistics players after GST and e-waybill implementation, it says.
In addition, the report said that multimodal offerings are likely to gain more adoption and traction in the future as players offering multimodal services had more flexibility.
Given these factors and the relatively greater financial flexibility available to large organized players over their smaller counterparts, there is potential for more formalization in the industry in the future, the report said.
In recent months there has been a continued improvement in freight traffic, aided by a recovery in demand in all sectors, a faster vaccination rate and a rapid decline in the third wave, which has allowed the rapid lifting of restrictions, among other things, ICRA said.
However, it said high commodity prices and rising freight rates are the main near-term headwinds.
Margin movement will continue to depend on consumer demand sentiment, the trend in diesel prices and the intensity of competition within the industry, the report said, adding that while the larger players have been successful in raising rates in FY2022 for the most part, their continued ability to doing the same is to get tested.
“Quarterly sales for the logistics sector passed multi-year highs in Q2 FY2022 and Q3 FY2022, supported by an ongoing recovery in industrial activity.
“The impact of the third wave was minimal as the number of hospital admissions was low. Although there were regional restrictions for a short period of time, manufacturing, construction activities and goods movements were allowed, limiting the impact on commercial traffic,” Suprio Banerjee, Vice Vice President said. President and Sector Head at ICRA Ratings.