Fleet operators could see revenue growth of 10-12% this fiscal year as they are expected to continue to grow their fleets, driven by increased demand from road freight sectors and higher reimbursements due to cost high borrowing rates, among others, said rating agency Crisil on Wednesday. .
The broad recovery of the economy from the ebb of the pandemic and demand from sectors such as steel, cement and coal propelled fleet utilization to 88% last fiscal year from 75% in the past year. of FY21, he said.
With high freight demand, fleet utilization will grow rapidly with increased capacity. As interest rates rose after the RBI raised the repo rate, the underlying demand will ensure fleet operators opt for fleet additions, Crisil said.
According to the rating agency, although the additions to the fleet would increase debt and leverage, credit profiles will remain stable. An analysis of 45 large fleet operators assessed by Crisil Ratings, representing one-fifth of the industry by size, indicates growth of 10-12%.
Among these, major operators are expected to increase their fleet size by 12-15% year-on-year this fiscal year, which will be financed by a mixture of external debt and regularization, he said, adding that although higher debt will be reflected in increased leverage and lower debt protection indicators, they will still be adequate.
Crisil noted that fleet utilization is expected to improve to around 95% in the current fiscal year due to continued economic recovery and minimal disruption from pandemics.
Continued demand from freight-intensive sectors and increased fleet utilization resulted in higher freight rates 3-4% year-on-year, while the global crude oil deviation led to revisions retail fuel prices in the domestic market, he added.
However, the delayed transmission of fuel price changes to freight rates will ensure stable operating margins for fleet operators, the agency said.
”Freight rates are being passed on with some delay to shippers as fleet operators attempt to balance rate increases with fleet utilization. With fleet utilization up 7-8% and freight rates reflecting retail fuel prices, fleet operator revenues will grow 10-12% this fiscal year, while will remain stable at levels of 7.5-8%,” said Rahul Guha, Director. at Crisil Ratings.
According to Crisil, accrued liabilities should be linked to revenue growth and stable operating margins. This would provide the means to increase capacity.
“Reduced fleet expansion over the past two years has helped operators conserve cash. Fleet expansion spending will now moderate its leverage metrics, but credit profiles will remain stable as interest coverage and debt service coverage ratios are expected to be well above 3.5 times and 1, 6 times, respectively, for this exercise. This compares to 4.6 times and 1.9 times, respectively, last fiscal year,” says Himank Sharma, Director, Crisil Ratings.
The rating agency, however, noted that any impact on freight demand due to an escalation of the Russian-Ukrainian war, a sharp revision in domestic fuel prices or a new wave of Covid-19 infections would merit. to be watched.
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