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Sustained investments to aid Indian logistics profitability: Ind-Ra

22 Jan '25
3 min read
Sustained investments to aid Indian logistics profitability: Ind-Ra
Pic: Adobe Stock

Insights

  • The macro-tailwinds arising from the India's multipolar investments across ports, rail, road and air transport are likely to bode well for the logistics industry, according to Ind-Ra, which has assigned an improving outlook for the sector for FY26.
  • Increased private capital expenditure on the network expansion of trains, dry terminals and warehousing will also support the growth of the sector.
The macro-tailwinds arising from the India’s multipolar investments across ports, rail, road and air transport are expected to bode well for the logistics industry, according to India Ratings and Research (Ind-Ra), which recently assigned an improving outlook for the sector for fiscal 2025-26 (FY26).

Moreover, policies such as the National Logistics Policy and the PM Gati Shakti National Master Plan aim at continuing to aid multimodal connectivity and interdisciplinary coordination. Additionally, public-private partnerships are expected to scale-up the ports portfolio.

Increased private capital expenditure on the network expansion of trains, dry terminals and warehousing will also support the growth of the logistics market in India, the domestic rating agency noted.

India’s Logistics Performance Index ranking improved to 38 in 2023 from 44 in 2018, with an aspiration to break into the top 25 by 2030 as part of Maritime Vision 2030. This will necessitate a reasonable budgetary allocation towards logistics infrastructure in the upcoming budget.

“Sustained investments and the resultant increased scale of operations are expected to improve the cost efficiency and operational flexibility, which could lead to higher profitability for Ind-Ra rated integrated logistics companies,” said Pratik Mundhada, associate director, corporates, at Ind-Ra in a company release.

“In Ind-Ra’s base case, we see double-digit revenue growth for rail operators in FY26, supported by huge private investments in rakes and dry terminals in 2024. For warehousing entities, we project organic rental growth of 3 per cent-5 per cent year on year, while demand for grade-A spaces is expected to remain intact in FY26,” he said.

“Container freight stations’ profitability is likely to remain subdued in this fiscal due to intense competition. Lastly, for freight forwarders, revenue growth and EBITDA [earnings before interest, taxes, depreciation and amortisation] are likely to be impacted by a moderation in the global freight rates,” he added.

For sea transport, Ind-Ra projects port volumes will be supported by the coastal movement of goods and global container freight with the easing of geopolitical tensions, including the Red Sea crisis and the normalisation of US-bound traffic.

EBITDA for container freight stations is expected to remain range-bound due to an increase in the proportion of direct port delivery and high competition intensity at large ports.

The agency believes the full commissioning of the Western Dedicated Freight Corridor will improve the utilisation of rakes and terminals, thereby enhancing the operating profitability of container train operators.

On the flip side, increased competition and revisions of haulage charges will remain key monitorables. The Eastern Dedicated Freight Corridor is likely to improve supply chain efficiency for thermal plants, led by increased speed and scheduled train operations.

Ind-Ra’s ratings on logistics and supply chain companies are mostly on a stable outlook, given the sustenance of operational performance, while maintaining a comfortable leverage profile.

“While we see capital investments by logistics infrastructure companies including warehousing, rail and dry terminals, their ability to raise long-term debt at a competitive pricing and Ind-Ra’s expectation that these companies will be able to optimise the asset utilisation are supporting their credit profile and thereby the stable rating outlook,” the press release added.   

Fibre2Fashion News Desk (DS)

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