India's Domestic Sectors Boost Fleet Utilization for Road Transport

Chennai: Despite the slackening of exports, road transport fleet operators would see utilization improve this year due to support from certain domestic sectors.

Nearly a third of freight demand emanates from export-oriented sectors, which decelerated last fiscal.

However, Crisil expects revenue growth of road transport fleet operators to double to 9-11 per cent this fiscal, riding on better domestic demand, and despite tepid exports. The operating margin also is seen improving 75-100 basis points on better fleet utilization and steady fuel costs.

The volume growth this fiscal will be driven by freight-intensive domestic sectors, such as mining, industrial, manufacturing, infrastructure and engineering goods. As a result, fleet utilisation will improve to over 85 per cent this fiscal from 82-83 per cent last fiscal.

Further, exports are showing signs of improvement, in line with growth trends in India’s key export destinations like the Eurozone and the US.

“This improved utilisation will not only lead to revenue growth but also enhance efficiencies for operators. Additionally, as diesel and fuel, which constitute about 55 per cent of the total cost, are pass-through expenses, any increase in their costs due to international price revisions can be passed on to customers as demand remains strong. With other costs remaining steady, the operating margins of operators will improve to 9.0-9.5 per cent this fiscal,” said Himank Sharma, Director, CRISIL Ratings.

Fleet operators expanded their fleet size by 60 per cent in the three fiscals through 2024, as demand recovered sharply post the Covid-19 pandemic. With focus now on consolidation of operations, fleet additions would moderate to 15 per cent of the existing fleet size this fiscal.