Transportation eases from peak

by Manasi Swamy

Transportation activity in India could not sustain the record levels it attained in the initial part of 2022-23. In July 2022, two main modes of transport waterways and railways saw cargo traffic drop to its lowest in the current fiscal. Mobility on roadways and airways also likely declined as consumption of fuels used by these modes of transport shrunk sequentially in July 2022. Passenger movement eased too.

Prima facie, this suggests that the transportation industry in India has possibly started feeling the heat of rising inflation and global slowdown. This could also be an indication of an impending slowdown in the growth momentum of the Indian economy.

Transportation contributes about 5 per cent to India’s GDP directly. Besides, it is an enabler of economic activity and a facilitator of international trade, which makes it a lead indicator and a good gauge of the direction of the economy.

The allaying of transportation activity in July 2022 was due to a combination of contraction in foreign trade and mellowing of domestic demand.

India’s merchandise trade shrunk by 6.8 per cent in value terms in July 2022 compared to June 2022. A direct reflection of this was seen on cargo traffic at major ports which contracted by 3.9 per cent to 63.4 million tonnes in July 2022 over June 2022. A broad-level break-up reveals that the performance was a mixed bag. Port traffic of finished fertilisers, coking coal, containerised cargo and other miscellaneous cargo at major ports declined sequentially in July 2022. On the other hand, traffic of raw material for manufacture of fertilisers, thermal coal, iron ore and other liquids increased. Interestingly, petroleum products that led the contraction in India’s foreign trade, particularly in export earnings, reported a 0.8 per cent increase in traffic at major ports in July 2022 over June 2022.

Rising interest rates and winding down of stimulus packages is likely to keep demand for exports from western countries mellowed in the remaining parts of 2022-23. Besides, steeper depreciation of other currencies against the US dollar is taking away the competitive edge from India despite depreciation of the rupee. India has also banned exports of a few commodities like wheat and sugar, and has imposed tariffs on exports of commodities like steel, iron ore and petroleum fuels which is contributing to the slowdown.

Elevated and volatile commodity prices, depreciating rupee, hike in customs duty on gold imports, removal of mandatory blending of imported coal with domestic variety by power stations and a general waning of the pent-up domestic demand that unleashed in the first quarter of 2022-23 is likely to arrest increase in import volumes going forward.

We expect India’s foreign trade volumes and therefore cargo port traffic to weaken in the September 2022 quarter. The festive and wedding season may make things a little better in the second half of 2022-23. Yet, port traffic volumes are likely to remain far from the record levels they achieved in the first quarter of 2022-23.

Railway freight traffic declined month-on-month by 2.7 per cent in July 2022, after falling by 4.7 per cent in June 2022. At 122.1 million tonnes, Indian Railways carried its lowest monthly freight volume of 2022-23 in July. While tonnage of imported coal, iron ore for exports and steel & its raw materials increased, that of domestically produced coal, POL, foodgrain, container cargo and other goods declined. Cement reported a seasonal fall, while fertilisers reported a seasonal rise in demand and thereby in railway freight traffic in July upon arrival of the monsoon.

Transportation activity by roadways also showed signs of slowing down in July 2022. We use diesel and petrol consumption as proxy for measuring road transport activity of commercial and private vehicles, respectively, due to absence of official statistics. Sales of diesel by top three oil marketing companies (OMCs) - IOCL, BPCL and HPCL declined by 12.9 per cent in July 2022 compared to June 2022. Sales of petrol fell sequentially by five per cent in July 2022. Sales of ATF also eased by 1.1 per cent in July 2022 compared to June 2022. While there is an element of seasonality in this fall due to conclusion of summer holiday travel season, the fall also hints at some weakening of domestic demand.

Indian manufacturers and service providers, both are currently expressing concern about the rising cost of transportation. Truck and tanker freights have increased sharply over the last one year due to rising fuel prices. The India Manufacturing and Services PMI panel surveyed by S&P Global, in July 2022, cited transportation as one of the key sources of inflationary pressures. The service providers also complained of the recovery of the sector having lost momentum in July 2022 which does not bode well for the transportation activity.

We expect transportation activity on both railways and roadways to remain mellowed for some time due to weakening export demand and uncertainty around domestic demand due to erratic monsoon. It may regain momentum and surpass it’s first quarter level towards the end of 2022-23 as and if inflation eases and the domestic demand picks up.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.5 -2.7
Consumer Sentiments Index
Base September-December 2015
76.2 -0.5
Consumer Expectations Index
Base September-December 2015
74.6 0.0
Current Economic Conditions Index
Base September-December 2015
78.7 -1.1
Quarterly CapEx Aggregates
(Rs.trillion) Sep 21 Dec 21 Mar 22 Jun 22
New projects 3.41 4.02 8.19 4.34
Completed projects 1.29 2.77 1.29 1.18
Stalled projects 0.28 0.08 0.43 0.27
Revived projects 0.39 1.98 0.32 0.28
Implementation stalled projects 0.26 0.66 0.09 0.29
Updated on: 26 Sep 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.8 40.3
 Expenses 26.7 21.3 19.9 41.7
 Net profit 55.7 35.4 30.4 20.5
 PAT margin (%) 9.6 9.0 8.9 7.3
 Count of Cos. 4,703 4,750 4,651 4,568
Non-financial Companies
 Income 35.7 29.2 24.9 50.3
 Expenses 36.1 28.8 25.8 53.4
 Net profit 58.1 19.2 10.1 7.6
 PAT margin (%) 8.7 7.5 7.7 5.8
 Net fixed assets 4.9 2.1
 Current assets 11.1 15.1
 Current liabilities 0.9 11.8
 Borrowings 12.2 3.4
 Reserves & surplus 12.6 11.2
 Count of Cos. 3,394 3,439 3,375 3,346
Numbers are net of P&E
Updated on: 26 Sep 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 25.6
 Expenses 0.4 -3.3 23.9
 Net profit -6.1 72.0 63.6
 PAT margin (%) 2.0 4.3 8.9
 Assets 9.0 9.8 9.7
 Net worth 4.8 11.8 14.3
 RONW (%) 3.3 6.7 12.7
 Count of Cos. 32,686 30,979 5,135
Non-financial Companies
 Income -1.1 -2.1 32.3
 Expenses -0.9 -4.0 31.7
 Net profit -22.4 59.3 59.7
 PAT margin (%) 2.2 3.9 7.8
 Net fixed assets 11.4 2.3 2.0
 Net worth 2.1 10.3 14.7
 RONW (%) 4.6 7.5 14.1
 Debt / Equity (times) 1.2 1.0 0.7
 Interest cover (times) 1.9 2.4 4.9
 Net working capital cycle (days) 82 87 52
 Count of Cos. 25,868 24,352 3,741
Numbers are net of P&E
Updated on: 20 Sep 2022 10:23AM