Indian logistics will drive over the slump

A sluggish GDP will still hurt the industry but stable diesel prices and undeterred demand should compensate.

2013 is shaping up to be a more tumultuous year for Indian logistics, according to Fitch, during which regulatory and tax changes will have taken effect.

Here's more from Fitch:

Fitch Ratings says that that the Indian logistics industry is not expected to see any significant changes in 2012. This is mainly because of delays in the implementation of regulatory changes, like foreign direct investment in multi-brand retail, which were expected to change the way the industry operates. While small unorganised companies would continue to provide stiff competition to the organised sector, large companies with a pan-India reach could benefit over the medium term from potential regulatory changes from 2013 onwards.

Fitch believes that the impact of the slowdown in GDP growth is likely to be offset by a rise in the use of outsourced logistics, thus third party logistic companies providing transportation and warehousing would show a slight increase in revenues. Companies are expected to continue to concentrate on their core competencies, leading to the outsourcing of their logistical requirements.

Operating profit margins would remain stable, as the cost of diesel is not expected to increase significantly as a percentage of revenues. This is because diesel prices are expected to remain subsidised and increases in other operating expenses (insurance, toll, vehicle interest rates and lease expenses) will probably be passed on as most long-term contracts have built-in escalation clauses.

Furthermore, the Goods and Service Tax, which was expected to be implemented from April 2012, is likely to be delayed.

Railways' freight market share is not expected to increase as passenger fares would continue to be subsidised by freight hikes. Railways' inability to provide door-to-door service and lack of sufficient infrastructure continue to restrict its market share. However, road freight transport could witness an increase in market share at the expense of rail freight.