Road Transport Fleet Operators’ Revenue Poised for 9-11% Growth in FY25: CRISIL

Despite sluggish exports, road transport fleet operators in India are expected to witness a 9-11% surge in revenue during the fiscal year 2024-25 (FY25), according to a report by CRISIL Ratings. This growth is projected to be driven by robust domestic demand, offsetting the impact of tepid export performance.

The ratings agency anticipates that the credit profile of fleet operators will remain strong, as they are likely to moderate capital expenditure (capex) toward fleet expansion, following substantial additions over the past three fiscal years. This strategic move comes even as new guidelines for air-conditioned driver cabins are set to take effect in the next fiscal year.

CRISIL’s analysis suggests that the operating margins of fleet operators are poised to increase by 75-100 basis points (bps) in the ongoing fiscal year, further bolstering their financial stability.

The growth in road transport freight in FY25 is expected to be fueled by volume-intensive sectors such as mining, industrial, manufacturing, infrastructure, and engineering goods. Consequently, CRISIL estimates that fleet utilization will improve to over 85% during this fiscal year, up from 82-83% in the previous fiscal.

Despite potential headwinds from geopolitical uncertainties, fluctuations in interest rates, or sharp revisions in domestic fuel prices, CRISIL’s assessments remain optimistic about the industry’s prospects.

Notably, fleet operators have expanded their fleet size by a remarkable 60% over the past three consecutive fiscal years, capitalizing on the sharp recovery in demand following the Covid-19 pandemic. The immediate returns from these fleet additions have incentivized further investments.

While fleet additions are likely to moderate to 15% in FY25, the cost impact of the Ministry of Road Transport and Highways’ 2023 decision to mandate air-conditioned cabins in all trucks is expected to be nominal if operators choose to retrofit older vehicles with air conditioners.

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Shalaka Singh, Associate Director at CRISIL, stated, “Despite large fleet expansions over the past few fiscals, capital structures and debt protection metrics of operators have improved because of higher utilization piggybacking healthy demand. With minimal debt addition this fiscal and stronger revenues and margins, credit metrics will continue to improve, ensuring healthy credit profiles for operators.”

While nearly a third of freight demand emanates from export-oriented sectors, which decelerated in the previous fiscal year, CRISIL notes that signs of improvement are emerging, further bolstering the industry’s prospects.

Reference By:- https://www.business-standard.com/