Revenues of the Indian road logistics industry is expected to grow by a moderate 6-9 per cent year-on-year in FY2025 largely on the back of a significant increase in manufacturing output and an uptick in consumer speand e-commerce activity, a recent study revealed.

According to a study by ratings agency ICRA, following some disruption in business activities during Q1 amidst the general elections, the sector repares for the much-awaited seasonally strong festive period.

“An increase in manufacturing output amidst restocking and an uptick in consumer spending and e-commerce activities augur well for logistics demand. This, coupled with a favourable monsoon and the government’s continued thrust on capital formation, is likely to support revenue growth,” the agency said.

ICRA has maintained a ‘Stable’ outlook for the sector, fuelled by various government measures and policies in favour of the sector and the expectation of a stable demand outlook from varied segments like e-commerce, FMCG, retail, chemicals, pharmaceuticals, and industrial goods.

According to the agency, organised players are likely to maintain the pricing premium amid an overall inflationary cost scenario and shall support operating profitability in FY2025.

“Nevertheless, it would remain range-bound and trail the peak levels seen in FY2023. The debt coverage metrics are expected to remain comfortable in FY2025, despite some anticipated increase in debt levels due to capex for new vehicles, coupled with the rise in lease liabilities due to expanding branch network and technology investments,” it said.

ICRA projects the interest coverage and total debt/ OPBITDA in the range of 7.0x-8.0x and 1.4x-1.7x, respectively, in FY2025 compared to 7.6x and 1.6x in FY2024.

“A modest revenue growth was witnessed of 4.6 per cent in FY2024 over FY2023. The growth was subdued on account of a relatively muted demand amid high inflation, an uneven monsoon, a relatively lacklustre festive season and the rising interest rate regime,” Srikumar Krishnamurthy, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA, said.

He noted that the operating profit margin eased to 11.2 per cent 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 per cent with operating margins of 10-11 per cent. “ICRA expects the industry operating profit margins to remain in the range of 11-12 per cent in FY2025, with the organised players expected to maintain the pricing premium amid an overall inflationary cost scenario,” Krishnamurthy added.

The e-way monthly volumes have grown steadily over the years and remained largely stable in the last four months at above 100 million, with August 2024 reporting all-time high volumes of 105 million, signifying 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 in the current fiscal, 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 added.