Sharp QoQ recovery, beat vis-à-vis freight industry

Mahindra Logistics doubled its revenues QoQ, which led to flat YoY growth in revenues at | 833 crore (E-way bill data normalised only in September). On the segmental front, SCM (90% of FY20 revenues) grew 6% YoY to | 804 crore and PTS segment (10% of revenues) de-grew 71% to | 29 crore. PTS segment has been severely impacted owing to work from home policy adopted by corporates. Warehousing segment saw 18% YoY growth on the back of strong performance by non-auto segment (up 17%). Owing to strong QoQ performance, the company was able to normalise its EBITDA margins at 4.5% (flat YoY) while EBITDA also came in flat at | 37 crore. Higher other income enabled the company to report 31% growth to | 15 crore.

Shift of logistics operations to 3PL companies to garner traction

Social distancing norms have made it challenging for companies to maintain turnaround times & also led to higher logistics costs. 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. MLL ended with ~400 clients in FY20 and expects 30-40 client additions each year.

SCM segment sees normalised performance

A strong QoQ pullback was seen across segments (PTS is still a laggard) such as Mahindra SCM (52% of SCM revenues) posting 142% QoQ growth leading to flat YoY revenue while non-Mahindra SCM segment (48% of SCM revenues) saw 76% QoQ growth leading to 16% YoY growth in revenues. Within the non-Mahindra segment, non-auto segment (80% of nonMahindra) grew 20% YoY while auto segment fully recovered from Q1 fall and was flat YoY. It saw positive traction from e-commerce, FMCG, pharma verticals, while Mahindra SCM segment saw a strong performance from farm vertical. With the MoM recovery seen in the auto sector, we expect the segment to register better performance for the company (60% to SCM revenues). Non-Mahindra non-auto SCM revenues are expected to remain buoyed by continued growth in both transportation, value-added services provided to clients (warehousing, in-factory logistics).

Valuation & Outlook

MLL has strengthened its already strong liquidity position on balance sheet and further improved its cash conversion cycle in H1. With its asset light structure, MLL is well placed to face the volatile situation. Also, its recent performance in the non-auto segment (e-com, pharma, consumer segments), steadily has lowered its dependence on the auto sector (from ~70% in FY17 to 60% in H1FY21). Also, with a changing client profile, it has been able to leverage the situation by enhancing high margin warehousing, value-added services (up 16% in FY20) component in its revenue mix. We remain positive on MLL’s future prospects and with the quicker-thanexpected recovery in its core segments. We upgrade to BUY recommendation with a revised target price of | 430

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