Mahindra Logistics - Profitable 3PL model for ecommerce emerging - ICICI Securities

Mahindra Logistics (MLL) continues to strive to stitch through a slew of services into solutions. Ecommerce and FMCG contributed 50% to non-MnM supply chain revenue in Q2FY21, and were instrumental in delivering 18% YoY revenue growth. Given the push towards omni-channel that Covid-19 pandemic induced disruption has led to, MLL witnessed meaningful increase in demand in its sorting and fulfillment centres. Significant growth in e-market place augurs well for a profitable 3PL model with market share in high teens. There are tailwinds in freight forwarding (FF) including cross border and integrated transportation service offerings. Gross margin would have improved even further, but for one time cost impact. Enterprise mobility outlook remains muted and may take time to rebound. We maintain HOLD.

- Reiterating Rs100bn revenue target by FY26. 3PL + transportation addressable market size for MLL is Rs1,200bn. Three basic assumptions behind Rs100bn revenue target are i) auto market recovery to 7% growth rate, ii) favourable policy environment for 3PL and iii) successful execution of strategy (across 3PL, FF including cross border, express and shared enterprise mobility).

- Order intake is up YoY. There is more demand for solutions e.g. consolidation and network optimisation for transportation service. MLL's focus market remains ecommerce, consumer and general manufacturing - lucrative both in terms of supply complexity and size of wallet.

- Client addition/ activities in Q2FY21. Some customer acquisitions/ further penetrations highlighted in Q2FY21 are: i) Glass company, ii) electrical goods manufacturer in western part of India, iii) distribution solution for a capital goods manufacturer (metro rail) in Kolkata, iv) MLL is about to go live with a power tools manufacturer - BTS in Chennai. During Q2FY21, MLL won one end-to-end solution logistics fulfillment contract for a large consumer durable company with targeted delivery to distributors. This has been a large contract win with 1-1.5mnsq ft. space dedicated across India. FF business continues to show robustness with pharma clients of MLL distributing across multiple parts of the US now.

- While non-MnM warehousing revenue is increasing in double digits for the past couple of quarters, warehousing space under management has not been following suit. There has been a decline in stockyards and stores and line feed operations pertaining to auto customers and those has been offset by external warehousing space, build to suit facilities for multiple clients. The new capacity added is also higher value add than the facilities that are being dropped off leading to higher revenue/sq.ft. In Q2FY21, MLL added 0.8mn sq ft of BTS multi user facility. Further, flex solutions for ecommerce customers have been introduced, covering 12 locations and ~1 mn sq ft of warehousing space.

- Market share in ecommerce at high teens. Around 50% of non MnM SCM portfolio is being contributed by FMCG and ecommerce segments. MLL has introduced flex solutions to allow ecommerce customers to capture the seasonal spike in demand in new geographies. Operating inside the customer network and infrastructure, the solution allows setup and takes down short-term warehousing capacity in a few weeks' time. The strength of flex solutions comes from MLL's ability to work within the customer's network, which also allows expansion of service offering by MLL.

Shares of Mahindra Logistics Ltd was last trading in BSE at Rs.363.7 as compared to the previous close of Rs. 356.8. The total number of shares traded during the day was 5923 in over 867 trades.

The stock hit an intraday high of Rs. 366 and intraday low of 348.5. The net turnover during the day was Rs. 2126893.

Source : Equity Bulls

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