After slipping into the red, can Mahindra Logistics execute a U turn?

Mahindra Logistics Ltd (MLL), a 3PL provider, was one of the beneficiaries of the logistics boom. Between 2020-21 and 2023-24, the Mahindra group company’s revenue rose from ₹3,264 crore to ₹5,506 crore. With the outlook for the sector looking very positive, the Mumbai-based firm, which services around 19,000 pincodes, set a new milestone for itself: to become a ₹10,000 crore logistics services provider by 2025-26.

To this end, the company embarked on a massive expansion drive. It has built a 21 million sq ft of warehousing footprint spanning nearly 800 locations. The warehouses range from small affairs customized for individual clients to large multi-client gateways, of over a million sq ft each. MLL’s gateway at Luhari, Haryana, for instance, is about 1.4 million sq ft. It also manages a 40,000 sq ft warehouse in Electronics City, a prominent tech hub in Bengaluru, handling domestic and export orders for a premium American watch, leather accessories and jewellery brand.

MLL’s core business involves providing warehousing, delivery and logistics services to clients on a contract basis. The rise in overall demand and growth in the core business gave it the confidence to widen its focus to three non-core segments: business-to-business (B2B) express (part-truckload delivery with a quick turnaround), freight forwarding and cross-border logistics (air and ocean freight forwarding services via a network of global partners), and last-mile delivery (direct-to-customer operations). Together, these four verticals have been driving MLL’s 3PL play.

However, while the outlook looked rosy, reality has proved to be otherwise. MLL, which was founded in 2007 and listed in 2017, suffered a loss for the first time in 2023-24. Indeed, logistics providers across the industry have struggled with softer volumes, falling freight prices, and moderation in e-commerce demand—top etailing platforms such as Meesho, Flipkart and Amazon, which are serviced by 3PL operators such as MLL, have beefed up their own logistics arms.

Adding to the pressure, the logistics market, which is split between older companies such as Mahindra Logistics, TVS Supply Chain Solutions, Blue Dart Express and AllCargo Logistics and more tech-savvy new-age players such as Delhivery Ltd, Ecom Express, XpressBees and Shadowfax Technologies, has turned fiercely competitive. In the B2B express segment, for instance, MLL has to take on Delhivery, Safexpress and Blue Dart Express. In the contract logistics space, it competes with TCI Supply Chain Solutions, AllCargo Logistics, VRL Logistics and TVS Supply Chain Solutions.

Compounding its challenges, the acquisitions that MLL made between 2021 and 2023 to strengthen its new businesses are yet to contribute significantly to its topline.

Given all these setbacks, will MLL be able to achieve its ambitious revenue milestone? If so, what will it have to do to get there?

The gameplan

 

MLL made three acquisitions between 2021-22 and 2023-24. It acquired the business-to-business (B2B) express unit of logistics startup Rivigo; it took over Meru Cabs to bolster its enterprise mobility business; and it bought a 60% stake in ZipZap Logistics to expand its last-mile delivery segment.

The Mahindra group company’s revenue rose to ₹5,506 crore in 2023-24 from ₹5,128.29 crore the year before. But it posted a loss of ₹54.7 crore that year, against a net profit of ₹25 crore in 2022-23.

Contract logistics, which accounts for about 75% of its portfolio, contributed roughly ₹4,200 crore in 2023-24, while another 1,000 crore came from the three non-core businesses.

“To achieve ₹10,000 crore revenue by 2025-26 is a vision for the company. After a few years of growth, 2023-34 was weak, so we lost a year in between. We have to remember there are also a lot of macro factors like freight prices, e-commerce demand and others in play, which impact logistics," managing director and chief executive officer Rampraveen Swaminathan told Mint in an interview. “While growth is important, we want to also grow profitably. We are not a private equity-funded company that will look at first growing revenue and then optimise the model later," he said.

To get to the ₹10,000 crore milestone, Rampraveen said the contract logistics business needs to reach ₹6,500 crore, growing 21-22% in two years. That will need ₹400-500 crore of new business every year, and ₹400-500 crore growth in existing volumes. “We are working on this and feel fairly confident of being able to accomplish it," he said.

The other three businesses will have to double their contribution to ₹2,000 crore. “We have made the investments, so these need to pick up on volumes. We have a challenge in the B2B express business as we still have substantial (cash) burn there. But we know there is a lot of scope for these businesses to grow," he said.

The cross-border logistics business has suffered after the Global Container Freight Index plunged 70% between March 2022 and March 2024. Rampraveen believes prices will bounce back.

Around 60% of MLL’s client base is from the automotive sector, of which parent Mahindra & Mahindra has a giant share; 16% is e-commerce, while 24% is fast moving consumer goods (FMCG) and consumer durables.

“The ₹10,000 crore target is based on its sustained performance (11-14% growth) in the 3PL segment, which forms a major part of the consolidated revenue. This growth would be driven by increasing business from the 750+ existing clients and new clients. The newer businesses will also grow," said Harshal Mehta, research analyst at Prabhudas Lilladher Pvt Ltd.

The auto-dominated nature of MLL’s business is a risk factor, added Mehta, noting that if primary auto manufacturing volumes are impacted, logistics will also be affected.

MLL, however, is doubling down on the auto business. In May, it signed an agreement with Japanese logistics firm Seino Holdings Co, which marked the latter’s entry into India. The equal partnership joint venture is expected to create a ₹1,000 crore-revenue business over the next five years. The JV will leverage Seino’s global relationships with Japanese automotive customers and serve their logistics requirements in India. “We are strong in most parts of the automotive sector but not in Japanese OEMs. The partnership gives us an opportunity to address that," Rampraveen said.

The Rivigo impedance

 

Before acquiring the B2B express unit of logistics unicorn Rivigo in November 2022 for ₹225 crore, MLL had its own B2B express business, albeit on a small scale. The segment had witnessed strong tailwinds since the onset of the pandemic.

However, in the five quarters since the acquisition of Rivigo, MLL has faced integration challenges that led to lower-than-expected volume growth and losses. The delay in integration resulted in a drop in volumes, which had a cascading effect on operational inefficiency. The burn rate was high and the company lost ₹112 crore in 2023-24. MLL had aimed to achieve Ebitda (earnings before interest, taxes, depreciation and amortization) breakeven for the express business by the year-end. It now hopes to achieve this target by the end of September.

“The integration is complete now, but we are three quarters behind due to the delay. The burn in this period has been deeper than we anticipated, pulled down our profits and led to consolidated losses," Rampraveen said.

MLL’s listed rival Delhivery faced a similar challenge after taking over Spoton Logistics, a part-truckload service provider, in 2021. It took around seven quarters for Delhivery’s B2B express business to turn Ebitda positive.

The turnaround of the Rivigo business is crucial for MLL. “The company’s core contract logistics business is doing well. However, the losses in the B2B express segment, post the Rivigo acquisition, have dragged down the overall business in terms of profitability," said Ankita Shah, vice president of institutional equities research at Elara Securities (India). “B2B Express is a lucrative business in general. So, Rivigo’s turnaround is crucial for the company, for which it needs to clock volume growth along with operational efficiency."

Analyst reports have indicated that the company’s immediate focus on optimizing costs over growth in volumes, as well as subdued demand due to elections in the quarter ended June, will likely delay the breakeven. MLL also faces intense competition in the B2B express space, where others such as Safexpress and Blue Dart Express have a strong presence.

E-commerce contraction

Due to the huge rush in online shopping during the pandemic, leading e-commerce players committed to large warehousing spaces, combining both in-house and 3PL operations. However, with growth in demand tapering in the last couple of years, they were suddenly left with a lot of warehousing space. As a result, the e-commerce companies focused on using their in-house providers first.

In February, for instance, e-commerce major Meesho, which is considered to be the largest customer in the 3PL space with about 50% market share, launched Valmo, its in-house logistics system. The company said Valmo fulfils about 20% of its total orders, and this will double in a year’s time. While Meesho’s insourcing is likely to impact e-commerce focused operators such as Delhivery to a higher extent, it impacts other 3PL players, as well. Larger e-commerce firms such as Flipkart and Amazon have been building captive logistics capabilities, and this is bad news for 3PL operators such as MLL, which had themselves built large warehouses, and are now looking for ways to fill that space.

“This churn in the e-commerce sector has led to a recalibration, where the demand for outsourced logistics has shrunk," Rampraveen admitted. MLL services multiple e-commerce clients.

India’s total warehousing stock, in Grade A and Grade B categories, stood at 371 million sq ft in 2023, according to property advisory JLL India. This is estimated to rise to 520 million sq ft by 2027.

Of the 57 million sq ft of gross leasing deals transacted in 2023, 3PL firms grabbed the maximum share of 39%, against 31% in 2021, as per JLL India’s estimates. The e-commerce share in leasing, on the other hand, fell to 3% from 25% during this period.

“E-commerce players taking up warehousing space through 3PL firms, as well as direct leasing, both have fallen," said Chandranath Dey, head (operations & business development), Logistics & Industrial, India, JLL.

In the January-March quarter of 2024, JLL data showed gross leasing share by e-commerce firms had fallen further, to 1%.

Mobility stuck

Outside its four main business verticals, MLL also has a mobility business, with enterprise B2B customers making up 92% of the clientele. The company provides them airport ride-hailing and on-call services. A smaller B2C customer base also avails of the company’s in-city services.

MLL has had a mobility business since 2008, and acquired Meru Cabs in 2021-22 from group company Mahindra & Mahindra to boost the segment. However, it remains a small business, and contributed around 6% to overall revenue in 2023-24.

“We had targeted around ₹1,000 crore revenue from the mobility business. This has been the one that has been harder to execute. Covid came and took the wind out of the segment, and volumes dropped by 75-80%. We then had to rebuild the business. The Meru buyout was made to complement the business," Rampraveen said.

However, while many companies have called employees back to office, they have continued with partial work-from-home operations. As a result, Rampraveen said there is uncertainty over how quickly this business will turn around. “In mobility, logistics is a derived business. What other sectors do is what drives us," he said.

“It will take longer for Mahindra Logistics’ acquired businesses (Rivigo and Meru) to turn around and till then, they will be a drag on the overall business," said Elara Capital’s Shah.

Hope on the horizon

To be fair, while the overall business has slowed, a report released at logistics fair LogiMAT India in March, suggests things will pick up in the coming years. According to the report, India’s freight and logistics market is estimated to grow at 8.8% annually, from $317.26 billion in 2024 to $484.43 billion by 2029, riding on technological advancements.

Indeed, Prabhuhas Lilladher’s Mehta said MLL’s B2B and freight forwarding businesses are expected to report a strong bottomline performance in the next two years.

“This expectation is due to a weak FY24 base, some visible green shoots in the industry, and an expected turnaround in operations," he said.

Rampraveen believes that MLL may meet the ₹10,000 crore revenue target by 2025-26, or a few quarters later. “The company has taken some big calls and risks, and made some shifts", he said. “The mandate from the board was clear: build a Mahindra company for the logistics sector, not a logistics company for the Mahindra group."