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Growing With India
Mahindra Logistics is among the group’s ‘growth gems’ that are expected to become billion-dollar businesses in 3-5 years, a target that it believes it is ‘uniquely positioned to achieve’
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The Mahindra Logistics story began two decades ago from within the auto and farms sector of the group. What began as the logistics provider for Mahindra & Mahindra, less than a decade later, evolved into a separate entity eyeing the space of ‘Mahindra for logistics’. For Rampraveen Swaminathan, MD & CEO, this transition means not only expanding and building its share in the ecommerce space but also continuing to move beyond its core strength from sectors such as auto to include the likes of pharma, FMCG, durables, manufacturing and others.
As far as numbers are concerned, Mahindra Logistics (MLL) is ticking all the right boxes. It is India’s largest provider of contract and third-party services, focusing on the enterprise markets. Anish Shah, MD & CEO Mahindra & Mahindra informs that the logistics business recently climbed to a market cap of $720 million, which was 2.7 times over the last time. He says, “The business provides end-to-end services for various enterprises and has weaved in the latest technology to create a seamless set of services. We have marquee customers including various ecommerce companies as part of our focus area; the growth potential we see is phenomenal.”
The logistics market is around $200 billion at present but the way the industry is structured, Mahindra’s addressable market is at $17 billion. The company’s vision is to accelerate commerce. “Our ultimate goal is to orchestrate all our services together in what I call the lego block strategy. In this, we use unique ways for each of our customers to offer the best value and best fit driving productivity and reducing costs,” explains Swaminathan.
A Resilient Business
Market experts are optimistic about Mahindra Logistics. In Q1FY22, the company posted a “better than expected” performance. Analysts say that Mahindra Logistics delivered a resilient Q1FY22, where despite the second wave, revenue dipped 10 per cent and the earnings dipped 26 per cent, beating market estimates. “The key positive is the company’s high-margin and the return on capital employed. The non-M&M warehousing business continued to add space even as its top line dipped sequentially. Margin at 5.2 per cent (up 50bps QoQ) is again a testimony to MLL’s strong asset-light business model,” a senior analyst from Edelweiss observes.
As large corporates are outsourcing the supply chain function to specialised logistic players, Mahindra Logistics is among the beneficiaries. This is also a reason why it could withstand higher fuel costs and regional lockdown. “Mahindra Logistics displayed an agile business model, led by stickiness in its warehousing revenue. It also saw greater customer retention, cost-cutting measures and network optimisation (backed by strong IT infrastructure) in its transportation division,” says Pankaj Pandey, Head of Research at ICICI Securities.
Pandey, however, does caution that the company should watch out for the downturn in auto. “The auto segment comprises 60 per cent of Mahindra Logistics’ revenues, which could negatively impact the business,” he says.
Poised For Growth
This being said, the macros for the sector are favourable. “If you have to ‘make in India’, you have to move in India,” comments Swaminathan. The pandemic accelerated trends such as changes in India’s consumption economy, warehousing growth, and rise in omnichannel. The Mahindra Logistics chief points out that these, in turn, create demand for services integration, digitisation and automation. He says, “In the next decade, logistics companies will make money by creating the perfect orchestration deploying technology.”
This was on Mahindra Logistics’ radar even before the pandemic. Expanding its service lines, it is leveraging technology for productivity and cost reduction, re-imagining its customer experience. In last-mile mobility, the company is bullish on electric as well, stating that cargo is ready to take off on this aspect.“This industry will grow more as India grows. With logistics, now it is about core execution. We will make some acquisitions along the way and grow it into a much larger business,” informs Shah.
Mahindra Logistics is also investing in talent in a big way, calling it the “fuel for an industry like logistics that is fragmented”. Given all elements of its current strategy, Mahindra Logistics is very upbeat. In the middle of the pandemic, it raised its goal to become a Rs 10,000-crore company from a Rs 6,000-crore company. “The opportunity in India is far greater than outside for this business. As the industry formalises, we would have three or four very big players. We are working very hard on being one of them,” Swaminathan comments.
Stating that the company is uniquely positioned to achieve this target, he points to the Rise philosophy as a key growth contributor. “Mahindra Logistics draws inspiration from Rise, where the bigger part of our purpose is to positively impact communities, and emerge as a significant social multiplier. We are proud of what our teams are doing in this space. We do this because it is proven that ‘doing good’ is ‘good business’. The Rs 10,000-crore target is my job but delivering to the community is far more attractive for me,” says Swaminathan.