Mahindra Logistics - Non-M&M warehousing revenues up 18% YoY - ICICI Securities

We continue to witness a structural trend in Indian logistics - consolidation of warehousing towards Grade A+/A++ (large format) warehouses - in which Mahindra Logistics (MLL) is playing a key role. The shaping up of a 'J Curve' in warehousing revenues can turn out to be the greatest investment thesis for MLL. Q2FY21 witnessed ~18% YoY growth in revenues for non-M&M warehousing. Pharma, FMCG and e-commerce continue to drive growth in the segment. We maintain HOLD with a revised target price of Rs354/share (from Rs294/share earlier).

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- Revenue from M&M contributed ~50% of topline in Q2FY21. M&M contribution to revenues declined 1.1% YoY. There is hardly any non-auto/farm business that MLL has been able to capture from M&M in the current quarter. This leads to a minor disappointment in the Mahindra supply chain business segment revenues.

- Warehousing revenues increased 7% YoY in Q1FY21. Non-M&M warehousing revenue, driven by a trend of aggregation towards Grade A/B warehousing across FMCG, pharma and e-commerce, increased 18% YoY. Total warehousing contribution to revenues is ~20%, still ~2.5 percentage points higher than in FY20. Gross margin of the SCM segment could have surprised further given the higher warehousing mix, if it wasn't for price renegotiation in some of the new contracts and the fact that a major bulk contract was out of the mix in the base period.

- Auto business increased 8% YoY in Q2FY21. Auto forms 58.5% of revenues, significantly up YoY from 52.7%. MLL has aggressive vision for enterprise mobility though Q2FY21 got impacted with WFH trends. Meaningful improvement is possible in gross margins for enterprise mobility as the topline is still down 70% YoY.

- Key commentary from CEO. "The business environment is steadily improving. With improving auto demand, combined with growth in our e-commerce, consumer and freight forwarding business, we remain positive that the execution of our strategy will continue to provide strong momentum. During the quarter we launched two new built-to-suit warehouses aggregating 0.8mn-sqft and continued to see strong demand for value-added services and solutions."

- Meaningful improvement in cash balance in H1FY21, driven by higher operating cashflows and lower capex. Operating cashflow significantly improved on the back of meaningful expansion in trade payable days in H1FY21. Also, capex run rate in H1FY21 is substantially lower YoY at Rs199mn. This resulted in increase in cash balance to Rs1924mn from Rs995mn in FY20.

- Maintain HOLD. Contract manufacturing, freight forwarding, multimodal offering and gradual entry into express logistics - MLL's business model has multiple pivots to ensure growth and augment an already attractive investment story. We roll over our estimates to FY23E. Maintain HOLD.

Shares of Mahindra Logistics Ltd was last trading in BSE at Rs.356.55 as compared to the previous close of Rs. 352.2. The total number of shares traded during the day was 499 in over 141 trades.

The stock hit an intraday high of Rs. 358 and intraday low of 355. The net turnover during the day was Rs. 177694.

Source : Equity Bulls

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