ICRA’s outlook on Indian road logistics industry remains Negative

October 6, 2020: The credit rating agency ICRA maintained the outlook on Indian road logistics industry as Negative due to continuing pressures on the credit profile.

Credit metrics are also expected to moderate over the near -term as profitability metrics remain under pressure. In FY2021, ICRA expects the average Debt/OPBITDA of its sample of logistics companies to weaken to 4.1x and interest coverage ratio to average at 2.6x as compared to 2.5x and 4.9 x respectively in FY2020.

“Going forward, given the sharp moderation in revenues in Q 1 FY2021 , and the gradual recovery thereafter, ICRA expects the aggregate revenue of logistics companies (in its sample) to decline by 18 -20 percent YoY in FY2021 despite sequential pickup as the year progresses,” said the report.

In Q1 FY2021, OPM of ICRA’s sample of key logistics players contracted sharply on account of the gross under-utilisation of assets during the lockdown phase, despite the implementation of cost-saving initiatives by several companies. The impact was severe for players operating on an asset-heavy model with owned fleet and warehousing space, while those operating on an asset-light business model, fared relatively better due to lower quantum of fixed costs. Although companies aggressively engaged in cost-control initiatives on expenses related to employees, rentals and administrative heads, it was grossly insufficient to compensate for the sharp contraction in revenues. Accordingly, aggregate OPM of ICRA’s sample contracted by 600 bps on a sequential basis and nearly 900 bps on a YoY basis to 0.5 percent (9.5 percent in Q1 FY2020), highlighting the significant stress on operating profitability of logistics players during this period.