Mahindra Logistics - Non-M&M warehousing revenues up 35% 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. Q3FY21 witnessed ~35% YoY growth in revenues for non-M&M warehousing. Pharma, FMCG and e-commerce continue to drive growth in the segment. We upgrade MLL to BUY with a revised target price of Rs572/share (Rs425/share earlier).

Key takeaway from the conference call. "As channels proliferate and the volume variability across channels increase - risk of missing delivery is increasing costs and increasing demand for integrated supply chain management offerings that MLL can provide'.

- Revenue from M&M contributed ~48.6% of topline in Q3FY21. M&M contribution to revenues increased 19.8% YoY, driven by 30% YoY growth in the farm sector. Interestingly, Q3FY21 can be the defining quarter for MLL where Non M&M warehousing starts to be the dominant contributor of revenues - M&M and non-M&M revenues were similar in Q3FY21. Higher non M&M revenues driven by tailwinds in the integrated supply chain management services that MLL targets can start charting out a much improved profitability from here on (whether it leads to a deterioration of working capital - time will tell).

- Warehousing revenues increased 24% YoY in Q3FY21. Non-M&M warehousing revenue, driven by a trend of aggregation towards Grade A+/A++ warehousing across FMCG, pharma and e-commerce, increased 37% YoY. Total warehousing contribution to revenues is ~19%. Gross margin could have surprised further given the higher warehousing mix, if it wasn't for i) startup costs for new contracts and ii) availability of transport partners increasing costs for the transportation.

- MLL best placed to incrementally win wallet share of customers. Focus on i) integrated service platforms ii) multi modal offerings iii) operational excellence to drive cost competitiveness and iv) technology platforms (transport management system, warehouse management system, integrated site management system) to help service delivery is showing in increasing trend of order wins favoring integrated services. MLL also continues to add to its service portfolio, adding flex solution for temporary warehousing spaces in H1FY21. Q3FY21 witnessed launch of Edel - EV driven last mile delivery service, targeting B2C space incrementally.

- Upgrade to BUY. 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 upgrade to BUY with a revised target of Rs572/share.

Shares of Mahindra Logistics Ltd was last trading in BSE at Rs.469 as compared to the previous close of Rs. 482.6. The total number of shares traded during the day was 743 in over 114 trades.

The stock hit an intraday high of Rs. 485.25 and intraday low of 469. The net turnover during the day was Rs. 353712.

Source : Equity Bulls

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