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Recovery priced in

* During Q3, the company saw strong logistics requirement across transportation and warehousing segment. The Festive season also helped in volumes growth and MLL saw 15% yoy growth in Consolidated revenues.  

* Recent trends witnessed: 1) jump in volumes from fulfillment centers and higher transportation volumes. 2) Focus on expanding the partners for coverage 3) Expanding the presence in groceries and essential products and launching fulfillment centers in Q4.  

* Auto and tractor demand: Strong turnaround was witnessed in the Auto segment.  Tractor demand was driven from rural and semi‐urban cities. The rural demand was high on the back of better cashflow and good Rabi sowing leading to strong tractor demand. The offtake from South was boosted due to the Pongal festival. Auto OEMs have shown strong improvement despite challenges. One of the large OEM in Maharashtra announced a shutdown, impact will be visible for some time but will be offset by the new client addition. The strong growth in Farm auto (30% yoy) was one of the key reason for the M&M revenue growth and contributed higher than auto (double digit growth).  

* E‐comm: Continue to see strong growth with focus on the digital side. Online shopping continued to be the preferred mode driven by safety issues due to COVID. The festive season gave further boost to the online sales. The company believes that the demand will continue to be strong.

* Consumer/FMCG/Pharma/Durables and Apparels demand have reached to Pre‐ COVID levels and segment like apparels benefited maximum from festive season. The customers of these segments are redesigning their business as they are moving on digital mode and B2C models. This has translated into good uptake for MLL.       

* Vaccine distribution: The logistics sector would play an important role in the vaccine distribution. Domestic warehousing, last mile, and cross border logistics are some segments where logistics companies can play a role and MLL has presence. Monitoring at every stage is the value preposition for the 3PL players. Distribution and last mile delivery of vaccines is managed by government. The material volumes flowthrough has not happened in this quarter. The company is focusing on building cross border logistics for pharma, warehousing for storage of vaccine. The volumes are expected to come in FY22.  

* Freight Forwarding segment: Saw the surge in freight rates. The segment has shown a strong growth of 90% yoy during the quarter on a low base.  

* Enterprise Mobility: remained under stress despite improvement. Most companies in IT/ITes are continuing with work from home policy. Efforts are being made to add new clients. Maintains positive outlook on work to home travel and business‐ related travel. Expects 4‐5 quarters for situation to normalize.  

* Warehousing: MLL expects growth in this segment. Flex solution is providing flexible and strong supply chain solutions. The company expects segment to provide stable offering in coming future.  

* Integrated solutions: Many customers are asking for integrated solutions, warehousing, sortation, inbound logistics etc. Earlier, different companies were partnered for providing different solutions which are changing over time. MLL is well positioned to provide end to end solutions and capitalize on the opportunity.

* Launched 100% EV based Last mile delivery service under ‘Edel’ Brand for the customers in E‐Commerce, FMCG and other markets. The service will be provided at 6 cities namely Bengaluru, New Delhi, Mumbai, Pune, Hyderabad and Kolkata and targets to expand to 14 cities in next 12 month. EDel will provide package & trip‐based services. These offerings will provide customers a scalable, sustainable and cost‐efficient solution. Company expects to see growth in small package solution with EDel Mahindra logistics. Earlier, the company focused on B2C segment with bigger appliances for last mile delivery. Now it will start delivering small packets. This will be a partnership‐based business model, and this will bring positive contribution from first day.

* Customer addition: The company has won large order from one of the India’s largest consumer company for providing end to end services. 2) expanding the network in North for the large pharma companies. 3) Commissioning grocery center in eastern India 4) Auto outbound business, the company has an exclusive distribution of passenger car and SUVs. These new client additions will take 3‐4 months to get added in the revenue. The response from the customer has been positive.

* Other Details: (1) The volatility in fuel supply and new project launch which are in the starting phase impacted the gross margin. The margins will ramp up and will remain stable. (2) The proportion of Mahindra group in revenue stood at 49% vs 50% qoq and 48% yoy. (3) Cash stood at Rs.1.88 bn at the end of Q3FY21. (4) For 9M FY21 cumulative capex stood at Rs.400 Mn (5) Top 20 clients account less than 60% of revenue reflecting well spread client base 

Our view

Q3 has been a decent quarter for both Auto and Non‐Auto businesses. The cost cutting measures have also helped in improving margin performance. Going forward, we believe MLL’s growth would be driven by growth in End use segments and also how the new initiatives like Flex Warehousing solutions and EDEL (last mile delivery) play out. We raise our estimates to factor in the improved outlook and also roll forward our estimates to FY23 and revise target price to Rs.391. While the outlook has improved and several new initiatives are being undertaken, we believe the positives are priced in at current levels (trades at 36x FY23 EPS). We would await better entry point and retain SELL.

Mahindra Logistics Q3 FY21 first cut: Decent show

* Mahindra logistics reported topline of Rs10.5 bn (+15% yoy), higher than our estimate of Rs.9.0 bn.  

* While Supply Chain Management (SCM) segment grew ~24% yoy, Enterprise Mobility (EM) division continued to struggle with revenue declining ~60% yoy. The performance in the EM segment was likely hit as large part of clients’ employees continued to work from home (leading to lesser requirement of transportation).

* The Company reported Operating Profit of Rs530 mn, (+25% yoy). Margins came at 5.1% in Q3 FY21 vs 4.7% in Q3 FY20.  

* APAT grew by 17.5% to Rs.183 mn during Q3 FY21

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