August 5, 2020: The credit rating agency ICRA downgraded its outlook on Indian road logistics industry to ‘Negative’ from ‘Stable’ citing the weakening of credit profile Covid-19 pandemic and nationwide lockdown.
ICRA also anticipates the domestic freight transportation revenue to fall by 18-20 percent in fiscal 2020-21 in the backdrop of 9.5 percent contraction of GDP and compared to its April 2020 estimation of 8-10 percent.
Going forward, ICRA’s expects asset-light players would be relatively better placed to tide over the near-term stress due to lower fixed costs while entities with the asset-heavy business model would likely see a greater negative impact.
Reasons for the negative outlook
“The implementation of the 40-day nationwide lockdown aggravated the ongoing slowdown in the Indian economy with moderation in industrial activity and weak consumer demand resulting in subdued freight availability during Q1 FY2021. Freight movement, during the period, was also impacted by restrictions in cross-border movement, shortage in availability of drivers and manpower due to large-scale migration and lack of availability of return load. E-way bills generated in Q1 FY2021 declined by 52.7 percent YoY reflecting the subdued road freight movement. Likewise, railway cargo and port traffic also contracted sharply by 21 percent and 20 percent, respectively,” said the report.
Credit & debt of logistics companies
Credit metrics of logistics companies are expected to moderate over the near term. However, deferment of near-term debt-funded capex/acquisition plans by major logistics players would help cushion the impact to some extent. ICRA expects the Debt/OPBITDA of its sample of logistics companies, to average at 4.1x and interest coverage to average at 2.6x in FY2021, as compared to 2.5x and 4.9x respectively in FY2020.
Source: Indian Transport & Logistics News
