Mahindra Logistics (MLL) witnessed an impressive margin recovery in Q4FY22 as the effect of higher labour costs normalised across geographies and optimisation costs of the Bajaj contract also moderated (in our view). Gross margins improved 110bps QoQ to 10%, despite a QoQ decline in warehousing yield (area under management went up 0.3mn sq. ft. QoQ with second warehouse in Luhari commissioned). Drop in QoQ warehousing yield in Q4 is indicative of bumped up ecommerce revenues in Q3 and doesn't highlight any particular trend. Non Mahindra warehousing revenues were up 68% YoY, largely driven by e-commerce, consumer and freight forwarding businesses. With ~ 1.7mn. sq. ft. of Build to Suit (BTS) warehousing space addition and ~2mn. sq. ft. reduction in yard area management YoY in FY22, we are seeing a gradual uptick in warehousing yields. Q4FY22 results were prospective, and with a normalised valuation, we upgrade MLL to BUY from REDUCE.
- Post network optimisation, MLL expects to garner higher than blended margins from integrated service contracts (i.e Bajaj contract). Margin profile for integrated services and solution should be slightly higher than current blended margins through the life of the contract, along with creating certain customer stickiness (i.e. enhanced repeat business). Network optimisation for Bajaj contract took longer than initially expected given the inherent complexity and has extended into Q4FY22. The extent of network complexity can be understood from the fact that MLL is undertaking 800 trips everyday connecting 13 sites. Peak margins for these contracts will be higher than average (post the optimisation phase).
- Augmented last mile solutions. MLL has announced Rs717.3mn investment in Whizzard to acquire 60% stake (eventually). Incorporated on 27 July 2018 in Hyderabad, Whizzard operates an intracity distribution network for digital commerce and last mile delivery services. With its full stack digital capabilities and over 125 micro-distribution centres, Whizzard caters to 3,000+ pincodes across India. Turnover for the last 3 years: FY19 - Rs77.5mn, FY20 - Rs747.2mn and FY21 - Rs883.8mn.
- Second warehouse at Luhari (North) appears to have commissioned in Q4FY22. MLL is developing three warehouses totaling 1.4mn sq. ft. at Luhari logistics estate. 1st warehouse of 0.5 mn sq. ft. was commissioned in mid CY21, 2nd warehouse became operational in Q4FY22 (~0.4 mn sq. ft.) and the 3rd is expected to be operational in Q2FY23. This will handle MLL's pan India fulfillment and distribution of client services within e-commerce, consumer and engineering. ~1.7mn. sq. ft of BTS warehouses went live in FY22, taking MLL's total BTS portfolio to 2.3 mn sq. ft. Q4FY22 has witnessed a QoQ decline in warehousing yield; a seasonal phenomenon in our view as Q3 witnesses a bulge in ecommerce revenue.
Shares of Mahindra Logistics Limited was last trading in BSE at Rs. 474.95 as compared to the previous close of Rs. 476.15. The total number of shares traded during the day was 5314 in over 577 trades.
The stock hit an intraday high of Rs. 490.00 and intraday low of 472.10. The net turnover during the day was Rs. 2553023.00. |
