Margin pressure for Commercial Vehicle operator

Leading credit rating and research agency India Ratings and Research has recently come out with a report which underlines that even as there has been an increase in freight volumes in the recent months, the spike in fuel prices may keep the margins of commercial vehicle operators under pressure. “A gradual recovery in freight volumes and fleet utilisation levels will enable fleet operators to pass on a portion of the recent rise in fuel prices, albeit with some lag. The pass-through in fuel prices will vary across states, depending upon the available system capacity and freight demand. However, the lag in pass-through could create near-term margin pressures, subsequently affecting the commercial vehicle (CV) loan performance and the debt serviceability especially for small road transport operators (SRTOs). Additionally, Ind-Ra expects higher tonnage market contract operators will be better placed than lower tonnage market load operators,” the report said.
According to the report, the average diesel prices across leading Indian metros have risen over 20% yoy since May 2017. “A continued rise in fuel price could put further pressure on the margins,” the report added.
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