Mahindra Logistics hosted a
conference call on Jan 28, 2022. In the conference call the company was
represented by Rampraveen Swaminathan, MD & CEO.
Key takeaways of the call
Q3FY22 was a challenging quarter.
Demand from the auto sector continued to be impacted by semi-conductor supplies
and the festive season saw moderate growth. However the strong revenue
performance for the period was especially driven by Consumer, Pharma and
International freight forwarding.
Enterprise mobility business is
expected to remain under pressure and the company the company is trying to
mitigate it by broaden customer portfolio and that is yielding good results.
The demand from BFSI is subdued due to restrictions.
Automotive – the chip shortage
only to improve two quarter down the line. Both M&M and non M&M
impacted by slowdown. e-commerce – Reopening of physical stores have impacted
the e-commerce. The December was muted as some large seasonal products such as
ACs, Refrigerators, Fans etc was muted. Consumer pharma, fmcg there was
positive movement with opening of trade. Moderate growth in volume for the
company. More volumes coming in first mile and last mile.
Automotive demand will continue
to see volatility with improvement coming in later half of next fiscal. Farm
and agro with volume drop on the back of lower sales. In case of Consumer, Pharma and FMCG, the
volumes largely come in first mile and last mile.
Overall demand for logistics is
improving. Highest focus is on resilience while responding to the volatility in
supply and demand. Omicron waves are
resulting in fluctuating volume. There
is strong shift in preference for multimodal logistics especially in automobile
and metals.
Margin in Q3FY22 saw pressure due
to seasonal manpower costs, lower than expected demand and start-up costs for
new projects. Every quarter the company
will carry some start-up cost but in Q3FY22 the higher impact of start-up cost
is largely due to Bajaj Auto project.
Volume were lower than expected
and revenue at the lower level of the band and that hurt the margin. Manpower
cost inflation in the manpower cost.
Margin in transportation business
is largely stable but that of Warehousing solutions business were impacted by
factors above said. Start-up cost in a
solutions business is largely happens in the optimisation.
Of the additional/increase in
cost about 60-65% is peak related and manpower cost and about 35-45% is
start-up cost. The company is not expecting
the Bajaj Auto project related start-up cost is not expected to over spill.
Q3FY22 is the first quarter of
Bajaj Auto Project and it is in transition.
The company has deployed Technology driven supply model across the
customer base. There will be period of
optimisation during this period there will be high start-up cost. Optimisation
will take 3-6 months to complete. The margin may get impacted on account of
that.
Warehouse volume in Q3FY22 was
lower than expected band and thus the operation cost spread on lower revenue
hit the margin. All warehouse sites are
contracted out and the volume has not to the stated peak capacity but during
the quarter the volume were close to the lower band that is minimum guaranteed
volume rather than the middle or upper end.
When the resources including manpower are planned for 90-95% against the
minimum guaranteed band of 60-70% and the volume comes at minimum band level
then there will be pressure on margin. This has also inflated the cost. There was large spike in certain location in
South and some other non-south locations.
Against planned capex of Rs 80-85
crore for current fiscal the company has incurred a capex of Rs 70 crore upto
Dec 2021.
Not looking at revenue book
acquisition. But looking at capability both manpower and technology. Continue
to look at opportunity in both mobility and supply chain. Freight forwarding,
last mile delivery expansion as the company continue to be first and middle mile
company; technology in logistics either in partnership or acquisitions. In mobility the company is looking at
enterprise mobility services etc.
Meru Cabs numbers will be
consolidated somewhere in the latter part of this quarter or early next
quarter. There will be strong synergies
between the companies. Both the companies are asset light and there will be
better fleet management. There will be supply leverage, which will increase as
the same car will go for higher miles. Thus there will be better overhead
management i.e. technology, sales and marketing and cost optimisation. Secondly there will be demand optimisation
with cross selling, better availability of on call or airport business and
wider book your services. So the earnings will be better than what they
used to have. So first year there will be some loss but it will be manageable
level.
M&M Group contribution to
revenue in Q3Fy22 was 44% against 48% in last quarter. The M&M Group SCM
revenue was Rs 590 crore in Q3FY22against Rs 501 crore.
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