Mahindra Logistics Ltd: Growth story should stem from asset-light business model

Logistics industry should be able to continue its robust growth, but 3PL logistics should be able to grow at a rapid pace and lead to growth of fulfilment logistics, channel consolidation and cross border logistics. Asset-light business model and favourable market dynamics should act as principal growth enablers. Mahindra Logistics Ltd focuses to be INR10,000 Crores logistics service provider by FY26, delivering strong customer experience through technology-enabled solutions. Focus is also on digitization & innovation and expanding offerings.

About Mahindra Logistics Ltd

Mahindra Logistics Ltd is a leading provider of integrated supply chain and mobility solutions provider in India having strong presence across diverse industries. The company offers supply chain solutions to diverse industry verticals including automotive, engineering, consumer goods, pharmaceuticals, telecom, commodities, and e-commerce. Apart from these services, it offers integrated employee transportation solutions to enterprises in IT, ITeS, manufacturing, BFSI and consulting businesses. The company has an asset-light business model which has its focus on technology and emphasis on customer centricity. Mahindra Logistics Limited creates customised, technology-enabled logistics solutions and offers flexibility and scalability.

The company is a part of Mahindra Group having presence in 100+ countries. Mahindra Group carries out operations in 21 key industries and offers insightful and ingenious solutions which are global in their ramifications. The company aims of delivering customer experience with help of differentiated, technology-enabled solutions. It targets to be among 10 most-admired global logistics companies by 2030.

Growth Enablers of Mahindra Logistics Ltd

•   Management of Operating Costs Remains a Key Focus: 3Q22 was a challenging quarter as demand from auto sector was impacted by semi-conductor supplies and festive season saw moderate growth. The company saw strong revenue performance which was led by consumer, pharma and international freight forwarding. Margins were under pressure due to seasonal manpower costs, lower demand and start-up costs associated with new projects. Focus is on improving operating costs. The company continues to focus on delivering technology-driven, integrated solutions for its enterprise customers. It saw 7% year-over-year growth in its revenue from operations to INR1,118 crore, with revenue from warehousing & solutions rising by 35% year-over-year. In this industry, players continue to focus on increasing adoption of omni-channel strategy and they focus on integrating offerings to expand wallet share. The company should be able to capture industry trends as it focuses on growing profitable metrics through expanded offerings, integrating solutions and operational excellence. Strategic enablers include asset-light business model and business partner network. Consolidated revenue from operations came in at INR4,083.03 Crores in FY22 against INR3,263.72 Crores in FY21, exhibiting a growth of 25.10%. Consolidated PAT was INR34.57 Crores in comparison to INR29.18 Crores exhibiting 18.47% year-over-year growth.
• Asset-light Business Model- A Key Advantage: Asset light business model of the company helps its core strategy of profitable growth stemming from flexible and scalable solutions. This is in line with the company’s triple-bottom line approach. It maintains prudence in capital investment and continues to focus on shareholder values. In FY21, the company focused on expanding its portfolio of offerings which support its ability to design and deliver solutions. Focus was on building operational excellence by transformation of transportation capabilities, development of common operating systems and expansion of its network of warehouses. Performance should be enhanced by focusing aggressively on cost savings and executing key digital projects. In 1Q23, revenue from operations came at INR1,200 Crores, exhibiting 36% year-over-year growth. While revenue from warehousing & solutions grew 57% year-over-year to INR 266 Crores, PAT saw outstanding growth of 337% year-over-year to INR13 Crores. Demand growth in farm & auto segment and continuing growth in other markets was solid. Focus is now on cost management, acceleration of digital transformation, enhancing human capital and executing strategic platforms for profitable growth.

• Favourable Market Dynamics: Logistics industry continues to rapidly transform and it has an emphasis on knowledge and technology. Players revolutionised way this industry works by improving visibility of cargo, error reduction by using digital technology in documentation processes and by working on transparency in pricing and commercial contracts. Logistics sector should see steady growth over medium to long term, which should seek support from various infrastructure and development measures adopted by government. Favourable initiatives of government and development of infrastructure continues to emphasise need and opportunity to leverage rail, sea and waterways apart from road transport. Logistics companies leveraging big data should be able to improve efficiency and result in cost savings. GPS and location sensors proliferation help the companies optimise their resources for efficient operations. Range of 3PL companies work on integrating services and offerings to manage their portfolio gaps. Instead of offering piecemeal services, focus is to offer integrated services to address demand of customers. Warehouse operations helped by machine learning is being reimagined because of tech integration, resulting in autonomous guided vehicles and multifunctional bots. These have potential to speed up warehouse processes and bringing down costs.
• On Path to Recovery: Coronavirus pandemic outbreak had a large impact on country’s economy and businesses across spectrum. Logistics sector having an estimated size of $215 billion saw brunt of these unprecedented circumstances. With progression of lockdown easing, people and businesses across nation started adjusting to new normal and Indian economy initiated its path back on recovery. Logistics acted as a driving force. Rise in e-way bill collections, increased rail freight activity and better port volumes continued to suggest strong uptick in logistics activity and recovery of Indian economy and industry. Despite challenges, the company focused on delivering value through customised solutions, operational excellence and enhanced digitisation. By strong customer partnerships, solution capabilities, customer expansion, process efficiencies and product innovations, the company maintained profitable growth in prevalent economic scenario.
•  Indian Logistics Industry – Size and Structure: Logistics sector is a key sector in facilitating economic activity and trade movement in India. Sector was estimated to be at ~INR19,56,000 crores in FY20. This should compound at 11-13% over FY20-26 to touch ~ INR34,50,000 crores by FY26. Short-term growth can get impacted by COVID-19, but long-term outlook for this sector remains buoyant. Mahindra Logistics Limited caters to 3PL space and offers customised and unique transportation services such as line haul, mid-mile, last mile etc. Total addressable market of the company including 3PL and other services has been pegged at ~INR1,30,000 crores. 3PL market has been pegged at ~INR58,000 crores in FY20. It should compound at 17-18% and potentially become INR1,20,000 crores market by FY25 to FY26.  Globally, organised 3PL market stands at ~10% of overall logistics market. Domestically, it is ~3%. This exhibits substantial room for 3PL adoption. 3PL market has been largely fragmented as large number of regional players offer transactional services. As industry matures over next few years, there should be shift from pure-play transportation/warehousing services to high-value integrated services.

Conclusion

In post-COVID environment, there is a sharp focus on making predictability of supply chains better. Customers continue to focus on much more granular and multivariable dimension of supply chains. Hence, end-user industries and logistics service providers focus on supply-chain orchestration. This is being done by enhancing customer engagement experience with help of digital platforms, building operational flexibility and speed to cater to changing requirements with investments in IT infrastructure. Range of new-age service providers have come up over course of past few years, offering digital technologies. These technologies include blockchain, robotics, automation, and predictive analytics and they help in supporting innovative business models. Technologies like IoT, drones, Automated Guided vehicles, Augmented Reality, 3D printing and marketplace platforms should see higher adoption.

Industry players are working on integrating its offerings for wallet share expansion and filling up portfolio gaps. 3PL companies continue to work on developing competencies in offering express and distribution services. This can be done with help of acquisitions and partnerships. Changing consumer preferences and having greater expectations of predictable and faster deliveries led to higher adoption of e-commerce.

Government of India has been promoting EVs and they plan to build charging infrastructure. EV technology is for mid-range shared mobility applications and a range of companies continue to fulfil a part or entirety of employee transportation needs by using EVs. Numerous mobility companies raised funding and have initiated EV operations across India. Mahindra Logistics Limited continues to explore this opportunity to expand EV offerings.

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