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Seasonality impacts Q4; wins new clients

Mahindra Logistics (MLL) continued to report its normalised performance at pre-Covid levels in its auto segment (28% YoY growth due to weak base and QoQ largely flat). However, the non-auto segment declined QoQ (down 16% QoQ, up 29% YoY due to weak base), which the management has clarified was affected by seasonality (non-festive season), indicating the growing importance of e-commerce and flex-warehousing solutions in its revenue mix.

Enterprise mobility solutions continued to face headwinds due to lower utilisation of buses by companies, as most employees continued to work from home. Due to a change in product mix, margins stayed unchanged YoY (contracted 40 bps QoQ) to 4.7%. The company also reported an exceptional expense of | 2.8 crore due to an impairment loss on investment in JV.

Increased relevance of 3PL players post pandemic

MLL saw continued strong underlying demand for segments such as ecommerce, consumer durables & FMCG, pharma, etc, due to increased digitisation of bigger companies as well as MSMEs, as a strategy to counter the changed buying habits of consumers (omni-channel presence).

Auto segment also showed strong momentum, helped by the revival in the PV and farm sector. Specialised 3PL companies in such environments can provide reduced logistics costs, better turnaround time to each client on greater efficiency, lower capex, better utilisation level vs. each company’s internal logistics operations.

Capital allocation focused on generating more growth avenues

MLL via its EV based Last-mile logistics, which deals with multiple clients, recently, announced its partnership with Flipkart for electrification of its logistics fleet. Overall, MLL procured 300 EV vehicles and expects the count to go above ~1000.

However, the company aims to form a JV model for procurement of vehicles and is interested mainly in dealing in the network optimisation of the EV fleet. Also, MLL on its recent agreement with Bajaj Electricals for logistics optimisation and outsourcing arrangement, intends to create (in the next 12 months) several smaller interlinked fulfilment centres, supported by two national warehouses (to add 2 mn sq ft space). Subsequently, we expect SCM segment to grow at 17% CAGR (FY21-23E).

Valuation & Outlook

MLL has been strengthening its cash position in the balance sheet during the pandemic and has even improved its WC position. Going forward, given MLL’s strong B2B and B2C expertise in warehousing, first-mile, last-mile, line-haul, the changing situation presents a good opportunity for MLL to expand its relation with existing clients as well as win newer clients, by providing customers with multi-modal offering and invest in digitisation and innovation.

We remain positive on MLL’s future prospects and faster growth in its core segments. We maintain our BUY recommendation on the stock with a revised target price of | 630 (earlier | 540).

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