Fleet operators may see a 10-12 per cent revenue growth this fiscal as they are expected to continue adding to their fleets steered by higher demand from road-freight sectors and higher repayment due to elevated borrowing cost among others, credit ratings agency Crisil said on Wednesday.
Broad-based recovery in the economy after ebbing of the pandemic and demand from sectors such as steel, cement and coal propelled fleet utilisation to 88 per cent last fiscal from 75 per cent in FY21, it said.
With strong freight demand, fleet utilisation will ramp up quickly on increased capacities. While interest rates have risen after the RBI hiked the repo rate, underlying demand will ensure fleet operators go for fleet additions, Crisil said.
According to the ratings agency, even as fleet additions would increase debt and leverage, credit profiles will remain stable. An analysis of 45 large fleet operators rated by Crisil Ratings, representing a fifth of the industry by size, indicates the 10-12 per cent growth.
Among these, large operators are likely to increase their fleet size by 12-15 per cent year-on-year this fiscal, which will be funded by a mix of external debt and accruals, it said, adding, though higher debt will reflect in increasing leverage and toning down of debt protection indicators, they will remain adequate.
Crisil noted that fleet utilisation is expected to improve to around 95 per cent in the current fiscal owing to continuing economic recovery and minimal disruptions due to pandemic.
Continued demand from freight-intensive sectors and higher fleet utilisation have reflected in 3-4 per cent higher freight rates on year, while swerving global crude oil has led to revisions in domestic retail fuel prices, it added.
However, lagged transmission of fuel price changes to freight rates will ensure stable operating margins for fleet operators, said the agency.
“Freight rates are passed on with a lag to consignors because fleet operators try to strike a balance between rate hikes and fleet utilisation. With fleet utilisation seen 7-8 per cent higher, and freight rates mirroring retail fuel prices, revenues for fleet operators will grow 10-12 per cent this fiscal, while operating margins will remain stable at 7.5-8 per cent levels,” said Rahul Guha, Director at Crisil Ratings.
Cash accruals, in Crisil’s view, are expected to piggyback revenue growth and stable operating margins. That would provide the wherewithal to add capacity.
“Curtailed fleet expansion during the past two fiscal years had helped operators conserve cash. Spending on fleet expansion now will moderate their debt metrics, yet credit profiles will remain stable because interest coverage and debt service coverage ratios are expected at well over 3.5 times and 1.6 times, respectively, this fiscal. That compares with 4.6 times and 1.9 times, respectively, last fiscal,” says Himank Sharma, director, Crisil Ratings.
The ratings agency, however, noted that any impact on freight demand due to intensified Russia-Ukraine war, or a sharp revision in domestic fuel prices or a new wave of Covid-19 infections, will bear watching. PTI IAS HVA
