1658565166_c4gIGp_Mahindra_Logistics.jpg 
The third-party logistics business is on the cusp of mega growth for a well-entrenched player like Mahindra Logistics which is working on a clear strategy to more than double its turnover in next four financial years
Photo Credit :
Luhari village in Haryana’s Jhajjar district, about an hour’s drive from New Delhi, occupies a prominent place on the state’s industrial map. Thanks to its proximity to Delhi and Gurgaon, and easy connectivity to major cities and towns in the northern and western regions of India, it has emerged as a major warehousing hub. The village is dotted with dedicated warehouses and industrial parks belonging to major Indian companies and MNCs. Driving around Lohari, what catches the eye the most are three humungous structures bearing the name of Mahindra Logistics.
This June, Mahindra Logistics was in the news precisely because of these structures. With the third structure becoming operational, Mahindra Logistics came to create a record with these three warehouses that together add up to a whopping 1.4 million sq. ft making it the largest facility in a single park in the country. This facility has also come to represent the ambitions of Mahindra Logistics (MLL), the Rs 4,000 crore-plus logistics arm of Mahindra Group that wants to scale its business quickly and successfully.
This warehouse is an important part of MLL’s pan-India network of multi-client facilities that manage the fulfilment and distribution of its clients’ services within the e-commerce and consumer industries, informs Rampraveen Swaminathan, Managing Director and CEO, Mahindra Logistics. The facility is designed in line with MLLs sustainability standards, including liquid discharge management, renewable energy, waste management requirements and state-of-the-art automation.
"Expanding revenue from Solutions, which includes warehousing and value-added services, remain a critical part of our strategic priority. In FY22, we registered over 40 per cent year-on-year growth in revenue from Warehousing & Solutions. We plan to continue this growth trend in FY23," says Swaminathan.
Luhari is expected to play a significant role in MLL’s plan due to its proximity to key markets in Delhi, UP, Uttarakhand, Rajasthan, Punjab and Haryana, which are key consumption belts for ecommerce, pharmaceuticals, consumer goods and retail, among other markets. "We have a total of 1.4 million sq. ft warehousing area at Luhari which will facilitate us to serve these geographies effectively," adds Swaminathan.
The company firmly believes that third-party logistics (3PL) is an underpenetrated market in India compared to the developed economies and hence presents large growth opportunities. Already, MLL is one of the largest players in the 3PL market with wide array of solutions and services and a diverse customer base. "Additionally, we have long standing relationships with most players—current and potential customers. Hence, MLL is placed well for sustained growth," says Swaminathan.
As per a recent industry report, the 3PL market in India is poised to grow USR 10.74 billion during 2021-2025, at a CAGR of almost 8 per cent thanks to certain tax reforms and initiatives for 3PL coupled with the rapid growth of the ecommerce sector in the country.
Mission Rs 10K crore
MLL has set for itself a turnover target Rs 10,000 crore by FY26. In FY22, MLL clocked its highest ever revenue of Rs 4,083 crore despite the impact of the Covid waves. How will MLL double its turnover in next four years? According to Swaminathan, MLL has worked out a three-pronged strategy to achieve Rs 10,000 crore. The first is repositioning the core 3PL to focus on integrated solutions across its key markets. "Solutions like integrated distribution, sort and fulfilment centre operations, temperature controlled warehousing & distribution, returns processing and other value-added services will drive a large portion of growth here," he says.
The second strategy is the growth of network services including MLL's B2B express logistics business, last-mile delivery, electric vehicle cargo transportation and freight forwarding services. "These are critical to providing end-to-end services to our customers. We expect major growth in this as well," says Swaminathan.
The third strategy revolves around the mobility services of MLL. Notably, MLL has successfully completed the acquisition of Meru Cabs. "We are bullish on the recovery of the enterprise mobility market. With the acquisition of Meru Cabs, we will expand our existing business of employee transportation and build on services like airport transfers, on-call rentals, micro-mobility and B2B2C mobility," says Swaminathan.
He underlines the point that the 3PL business, which is at the core and generates around 75 per cent of the company revenues, may double over the next three to five years. "Given that our growth in the non-ecommerce space has been around 20-25 per cent, we are very confident of being able to sustain that,” says Swaminathan.
Growing Enterprise Mobility
Enterprise mobility is also a key business segment and MLL is keen to play a key role in this. Swaminathan concedes that enterprise mobility is highly fragmented, with a large number of small regional players. But that is where a large tech-enabled player like MLL can add certain competitive advantage. "Tech-enabled players like Alyte and Meru can offer advantages such as better fleet utilisation, improved service and safety performance etc. We have been leading providers of employee transportation services through Alyte, and with our recent acquisition of Meru, we will also build significant presence across segments,” says Swaminathan.
Meru also has a large number of electric vehicles in its fleet—around 350 or so. Hence, MLL’s acquisition of Meru will provide significant synergy by leveraging the combined capabilities of Alyte and Meru in supply, technology management and electric mobility.
In FY22, the enterprise mobility segment clocked sub-Rs 200 crore revenue due to the prolonged impact of the Covid-induced work-from-home culture. However, with the gradual opening of workplaces, MLL expects the demand to recover in the near future and the business to grow rapidly in the coming years.
Mahindra Logistics is working towards improving synergies between its existing personal mobility business and Meru. “If you look at a Meru vehicle today, compared to a year ago, you will find a very different service experience. The vehicles are clean, they are on time, and we don’t drop trips,” says Swaminathan.
“We are now finding synergies between the allied businesses supply chain of Mahindra Logistics and Meru. The offering is that a cab booked by a corporate enterprise mobility customer can be used to ferry other passengers when not in use.” he says, adding that Meru should be EBITDA positive towards the second half of current financial year.
One way to improve efficiency is to use the same Meru cab that is booked by a corporate enterprise mobility customer to ferry other passengers, say from airport to city, when not in use.
Challenges Galore
Being an extremely dynamic industry, the 3PL industry is very susceptible to the macro environment. Experts say the last two years have been especially volatile for the industry, and global supply chain volatility has only added to its woes. "The combined impact of Covid-19, geopolitical issues, demand-supply mismatch have impacted trade lane balances and availability of carrier and container space across many regions in the world. These factors have resulted in a sharp increase in prices creating cost pressures and impacted demand," says an industry expert.
Then to make the matters even worse, rising fuel prices have severely dented the profitability and cost structure of the transportation business in general. Since around 70 per cent of the logistics sector depends on roads and thereby on the fleet of trucks, the impact of rising fuel prices has been a big cause of worry for all 3PL companies.
Labour challenges, especially reverse migration spurred by Covid has created a shortage of labour. This has led to an overall increase in labour costs due to the demand-supply mismatch. "There are pricing pressure from customers as well. Rising input costs due to the increase in commodity and crude oil prices has led to increased focus on cost rationalisation by end-market customers. This has resulted in increased pricing pressure on logistics service providers," says Swaminathan.
But MLL is confident of the road ahead. It is also confident about crossing the milestone of Rs 10,000 crore in turnover in the next four years. Sustained economic growth, therefore, holds the key to what happens over the next few years.