India Ratings has kept the outlook stable for the logistics sector for the next fiscal as it expects a moderate growth for the industry despite the slowdown in the economy.
“India Ratings & Research has assigned a stable outlook to the logistics sector for FY15. This is based on the strong likelihood of the sector continuing to display overall moderate growth rate despite a continued economic slowdown,” said the Fitch group credit rating agency.
Most segments of the industry have low leverage, except the container freight station/inland container depot segment, giving industry players a degree of financial flexibility to weather the slowdown, India Ratings said.
Moreover, the value-added offerings of large players help support margins, thereby cushioning their credit profiles, it said, adding that most of the logistics companies rated by the agency are also on a stable rating outlook.
Revenue for companies offering value-added road freight services would grow at a higher rate of 12-15 per cent during the 2014-15 fiscal than those offering basic road freight services (8-10 per cent), India Ratings said.
Large companies in the road transportation segment will continue to be resilient to the slowdown, given their high operating efficiency and presence in profitable sub-segments such as time-definite delivery services and specialised offerings, it added.
However, the small companies would continue to be adversely impacted due to low demand for road freight during the slowdown, it said.
“This is because they contribute over 90 per cent to truck ownership in the country and are unable to revise freight rates in tandem with hikes in diesel prices,” the agency said.
Talking about the companies in the container freight station/ inland container depot segments (CFS/ICD), India Ratings said that the segments could display a high single-digit growth rate on the back of a revival in international trade volumes.
However, the CFS/ICD operators could be most impacted from the slowdown in India’s international trade volumes, considering the large debt-funded infrastructure investments made, the agency cautioned.
“Inadequate cash flows may force few companies to opt for corporate debt restructuring,” it added.
Talking about the third-party logistics (3PL) providers, India Ratings said the segment could also grow at a low double-digit rate in 2014-15, given increasing private port operations and integrated logistics offerings.
Speciality segments, where service offerings are linked to non-discretionary spending by corporates and driven by favourable legislation, would continue to display strong revenue growth and stable margins, it said.
However, services such as air charters could see a decline in demand due to the curtailment of expenses by corporates during the slowdown.
