The logistics sector is expected to grow by 7-9% in the current fiscal year, but margins for players in the sector are expected to remain “risk sensitive” stemming from a continued rise in oil and material prices first in the context of the Russian-Ukrainian conflict. , according to a report.
Credit rating agency ICRA’s report released on Thursday also estimated the sector’s growth to be around 14-17% in 2021-22 compared to pre-COVID levels, adding that momentum is also expected. continue during this exercise.
Medium-term revenue growth would continue to be driven by demand from various segments such as e-commerce, consumer packaged goods, retail, chemicals, pharmaceuticals and industrial goods, coupled with changing from industry paradigm towards organized logistics players post GST and e-invoice implementation, he said.
Further, the report indicates that multimodal offerings are likely to gain acceptance and traction in the future, as players offering multimodal services have more flexibility.
Given these factors and the relatively higher financial flexibility that large organized players have compared to their smaller counterparts, there is potential for increased formalization in the sector in the future, the report notes.
In recent months, there has been a sustained improvement in freight movements, helped by the recovery in demand across all sectors, the acceleration in the pace of vaccination and the rapid reduction in the third wave, which has allowed a quick lifting of restrictions, among others, the ICRA said.
However, he said high commodity prices and firming freight rates are the main headwinds in the near term.
The movement of margins will continue to depend on the sentiments of consumer demand, the trend of diesel prices and the competitive intensity within the industry, the report said, adding that if the big players managed to increase the rate to a large extent in fiscal year 2022, their sustained ability to do the same is up for test.
“Quarterly revenues from the logistics sector reached multi-year highs in the second and third quarters of fiscal 2022, supported by a sustained recovery in industrial activities.
“The impact of the third wave was minimal as hospitalization rates were low. Although there were regional restrictions for a brief period, manufacturing, construction activities and the movement of goods were allowed , which limited the impact on commercial traffic,” Suprio Banerjee, vice president and sector head at ICRA Ratings, said.