Fleet operators may see 10-12 per cent revenue growth this fiscal: Crisil

With fleet utilization seen 7-8 percent higher, and freight rates mirroring retail fuel prices, revenues for fleet operators will grow 10-12 percent this fiscal while operating margins will remain stable at 7.5-8 percent levels, said Rahul Guha, Director at Crisil Ratings. Cash accruals, in Crisils view, are expected to piggyback revenue growth and stable operating margins.

Fleet operators may see a 10-12 percent 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 costs among others, credit ratings agency Crisil said on Wednesday.

Broad-based recovery in the economy after the ebbing of the pandemic and demand from sectors such as steel, cement, and coal propelled fleet utilization to 88 percent last fiscal from 75 percent in FY21, it said.

With strong freight demand, fleet utilization 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 rating 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 a 10-12 percent growth.

Among these, large operators are likely to increase their fleet size by 12-15 percent 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 utilization is expected to improve to around 95 percent in the current fiscal owing to continuing economic recovery and minimal disruptions due to pandemics.

Continued demand from freight-intensive sectors and higher fleet utilization has reflected in 3-4 percent higher freight rates on the year while swerving global crude oil has led to revisions in domestic retail fuel prices, it added.

However, the 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 utilization. With fleet utilization seen 7-8 percent higher, and freight rates mirroring retail fuel prices, revenues for fleet operators will grow 10-12 percent this fiscal while operating margins will remain stable at 7.5-8 percent 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, the last fiscal,'' says Himank Sharma, director, Crisil Ratings.

The rating agency, however, noted that any impact on freight demand due to intensified Russia-Ukraine war, a sharp revision in domestic fuel prices, or a new wave of Covid-19 infections, will bear watching.