Road transport corporations' revenues to contract 35-40% in FY21 due to Covid-19: ICRA

Revenues of road transport corporations will contract by 35-40 per cent in the current fiscal due to the coronavirus pandemic-induced challenges, rating agency ICRA said on Wednesday.

The complete shutdown of operations due to Covid-19 from March 23, 2020 and the subsequent extension of the lockdown across the country have resulted in significant financial losses for the Road Transport Corporations (RTCs), it said in a statement.

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According to ICRA, the most significant challenge ahead for the RTCs after the lockdowns are fully lifted would be to increase passenger movement while containing the spread of the virus, through various measures like regular sanitisation of the buses and provision of protective gear for the staff.

"As per ICRA's estimates, measures, including buses operating with a cap of 50 per cent occupancy level and the perceived risk of travelling in a public bus by passengers at large, will lead to a revenue contraction of 35-40 per cent in FY2021 for the sector," the statement said.

Given the expected shortfall in revenues, the rating agency said many RTCs would need financial support from the respective state governments till their operations ramp up fully after the lockdowns are completely lifted in order to meet the operational expenses, especially the high fixed costs.

The financial support typically provided by several state governments like the deferment of the Motor Vehicle Tax (MVT) and the reimbursement of fixed costs like employee salaries to avoid any significant cash flow shortfall, emphasise the importance of the RTCs to the respective state governments, it said.

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Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings at ICRA said that even when the operations resumed from May 2020 onwards, passenger demand remained significantly low compared to the pre-Covid-19 levels due to the various social distancing measures introduced by the state governments to curb the spread of the disease.

"If occupancy levels remain low during the coming quarters, meeting employee costs would be the biggest challenge for the sector, as such costs typically account for over 50 per cent of the total operating costs of a state RTC," Roy said.

He also said that the virus outbreak will lead to heightened financial stress on the RTCs and that states will have to extend further direct/ indirect support to such entities.

"This will create further pressure on the state governments' own financial position, which has already weakened during the recent months due to lower revenues," he said.