ICRA revises the outlook of logistics sector from stable to negative

Given the prevailing circumstances and its near impact on the industry metrics, ICRA (formaly known as Investment Information and Credit Rating Agency of India) has revised the outlook on the logistics sector from ‘stable’ to ‘negative’. With intermittent lockdowns still in place in several pockets across nation and muted recovery anticipated in the industrial activity, the logistic sector including warehousing sector is likely to witness sharp demand contraction in the near-term. Consequently, in FY2021, ICRA expects a contraction of 18-20 per cent Y-o-Y 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. Accordingly, the outlook on the sector has been revised to ‘negative’ from ‘stable’.
The rapid rise of Covid-19 pandemic and subsequent restrictive measures implemented by the central and state governments to contain the disease has adversely impacted the prospects of the Indian logistics sector, especially the road freight transportation movement. 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 FY2020.