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Acceleration of growth trends seen earlier in Q2

In Q3FY21, MLL embarked on a path of broad based growth across segments (E-Way bill generated in October, November, December saw growth of 17%, 5%, 17% respectively). Revenues grew 15% YoY to | 1047 crore, led by 24% growth in the SCM segment to | 1010 crore. Enterprise mobility services de-grew 60% to | 37 crore. EBITDA margins expanded 39 bps to 5.1% due to lower employee and other expense. Subsequently, EBITDA grew 25% to | 53 crore. However, reported PAT grew 17% YoY to | 18 crore, mainly due to lower other income (| 2 crore vs. estimated | 6 crore and | 2 crore in Q3FY20).

Increased digital footprints of companies – key positive

Post pandemic, companies (FMCG, consumer durable, etc) are reviewing their supply chains and increasingly looking at Omni-channel presence & B2C models. 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. 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.

SCM segment performance continues to stay strong

During Q3, the company saw peak volumes in processing and fulfilment solutions, higher transportation volumes and also, focused on customers with a pan-India presence, servicing them with flex solutions. It also developed and expanded presence in grocery and essentials. On the auto front, MLL saw higher ton-mile coverage and strong growth due to festive season, good Kharif output. Also, e-commerce, consumer pharma, FMCG and apparels continued to show double digit gains during the quarter. However, during the quarter, the company also saw some of its gains getting erased by higher diesel prices and stress in the enterprise mobility segment (expected to remain weak for a further four to five quarters). We expect the SCM segment to grow at 11% CAGR in FY20-23E.

Valuation & Outlook

The management is focused on a broader strategy to focus on building integrated solutions, expand on targeted service lines (including line haul, first mile, last mile, freight forwarding, etc), providing customers with multimodal offering and invest in digitisation and innovation. MLL has been strengthening its cash position in the b/s during the pandemic. Also, with a changing client profile (addition of non-auto clients), MLL has been able to leverage the situation by enhancing high margin warehousing, value-added services component in its revenue mix. We remain positive on MLL’s future prospects and faster growth in its core segments. We maintain our BUY recommendation with a revised target price of | 550 (earlier | 430).

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