India's logistics sector likely to grow by 9-10% annually: Icra

Terming the outlook for logistics companies as positive in the medium term, rating agency Icra on Monday said India's logistics sector is likely to grow by about 10 per cent annually.

"With a gradual improvement in most of economic indicators over the past couple of months, the outlook for the logistics companies is positive in the medium term. ... The Indian logistics industry is expected to grow by 9-10 per cent per annum over the medium term," Icra said in a statement.

It said while there have been fluctuations in the economy and freight demand due to GST implementation, the impact of the same would be temporary and would be corrected over the near term.
 

Shamsher Dewan, Vice President and Sector Head, Corporate Ratings, Icra said, "Our analysis of the Q1 FY2018 performance of key listed logistics companies indicate that their revenue growth at 6.2 per cent (on Y-o-Y basis) outpaced the real GDP growth, much of it was supported by increase in freight rates since the latter half of FY 2017 while volume growth remained flat for most of the companies."

In addition, companies have benefited from the underlying sectors such as automobile, consumer durables etc. which have bucked the economic slowdown trend, it said.

From a profitability perspective, while the aggregate operating profit margins improved marginally on a sequential basis to 9.7 per cent during Q1 FY 2018, there was pressure on the margins on a Y-o-Y basis, it said.

Although the manufacturing activity has declined further in July 2017 post GST implementation, there has been a gradual improvement in most of economic indicators over the past couple of months, which suggest the outlook for logistics companies is likely to turn favourable going forward, it said.

The road freight rates also followed a similar trend, with the decline in industrial activity and lack of freight demand resulting in a sharp decline of freight rates in July 2017, and subsequent recovery in August 2017 as the industrial activity and freight demand improved, it added.

"The logistics industry would continue to benefit from economic recovery and revival in industrial output, while supply side factors like improvement in logistics infrastructure and emergence of logistics startups would offer further impetus to growth," it said.