Logistics sector to grow at 8-10% over the medium-term; outlook stable: ICRA

Key drivers for demand pick-up would be the festive season as well as the anticipated revival in infrastructure spending post-monsoon

Logistics, Logistics sector, Icra, Revival in infrastructure spending, Shamsher Dewan, Integrated logistics players, Warehouses, Inter-modal transport hubs, Fleet, Cold storage

The domestic logistics sector is set to grow at 8-10% over the medium term with the outlook remaining largely stable, ratings agency ICRA said. The key drivers for demand pick-up would be the festive season as well as the anticipated revival in infrastructure spending post monsoon and improvement in receivable cycle of contractors.

"ICRA Research has forecast the domestic logistics sector to grow at 8-10% over the medium term with the outlook remaining largely stable," it said.

The ensuing demand momentum will lead to higher freight volumes in the second half of FY2020 despite weak macroeconomic scenario, it added.

ICRA Ratings VP Shamsher Dewan said: "We expect the sector to continue to outpace the GDP growth over the medium-term, which apart from demand side factors would also be supported by supply-side positives like emergence of integrated logistics players, investments in infrastructure development - warehouses & inter-modal transport hubs and; capacity augmentation being undertaken by large logistics players."

"Industry capex towards capacity augmentation (fleet, warehousing, cold storage, terminals etc) and investments in technology to improve service offerings is estimated at Rs 9-11 billion annually (which translates into 2-3% of operating income)," the statement added.

The credit metrics of ICRA's sample of logistics companies are anticipated to remain comfortable, it said.

On the flip side, however, ICRA's analysis of sample of 12 large logistics players in Q1 FY2020 has indicated a slowdown to 7% as compared to 11% in Q4 FY2019 and 10% in Q1 FY2019.

Dewan added: "ICRA expects the Indian logistics industry to continue evolving/being shaped in the medium term as reflected by the on-going trends. This includes trends like shift towards organized players post GST and E-way bill implementation, focus on multi-modal offerings, increasing interest by private equity and foreign players in the space, emergence of e-commerce logistics requirements, focus on warehousing and cold chain services, and increased adoption of technology."

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