Mahindra Logistics Ltd - Q2FY21 Result Update - YES Securities

Conference call takeaways

- The company has seen pick-up in logistics activity and normalcy on monthly basis. Pharma continues to see the positive growth and expect similar trend going ahead. Auto segment has seen good demand from smaller cities and rural sector. 2 wheeler has picked up while Medium and heavy vehicles have remained weak and expect such trend for several quarters. H2 FY21 will be better than H1 specially for the automotive sector. Engineering and capital goods segments are doing better but improvement is gradual.

- Shipment via rail for longer distance has increased. Started Pharma products movement through rail in India as well in Bangladesh.

- E-comm has shown 40% YoY growth which has accelerated the demand for fulfillment logistics. Strong demand for essential goods via e-comm was seen in Q1 and continued in Q2 especially in Tier2 and Tier 3. Strong growth in volumes were seen at Sort centres, fulfillment centres, opening of new fulfillments for groceries and milk centres.

- The lower imports from China have given boost to local manufacturing. This has also given opportunities to the Pharma companies to diversify geographically and innovate the supply chain management. Many customers are evaluating the supply chain and going digital.

- Commodity: Mining, Mineral and Metals are doing well and expect to do well in coming time with improvement in economy.

- The Company won new customers and tried to ramp-up business from the customers which were won last quarter. Won new transportation and consolidated contracts during the quarter.

- Opened 12 FLEX fulfillment solution centres across India which provides short term warehousing, fulfillment/sort centres. ~1mn sqft has been given for this purpose and Contracts are for 3-6 months. This solution will provide the customer to provide ease of space during the high demand (during festive season) and create the high returns and geographic expansion for the company. This solution also provides the temporary solution to identify the demand before doing actual capex.

- Mobility: remained under stress. Most companies in IT/ITes are having work from home policy, no major improvement seen in coming quarters also. Trip levels are at 25% but are under stress.

- Working on expanding e-com segment, bus based mobility segment and new services on call and B2C service. These initiatives are helping in sharp decline in volumes but consistent recovery is 3-4 quarters away.

- Service line: Transportation based: Line haul and long haul improved but challenges remained like volatility in fuel price, transporters having liquidity issues. These have impact on cost. Express segment/last mile and freight forwarding segment did well. Carrier availability remained a challenge.

- Warehousing: The slowdown in auto has resulted into slowdown in stockyard. External warehousing has seen good jump. The new capacity addition is more value added than the capacity dropped off which resulted into the revenue growth at much faster rate.

- Non - MM SCM: E-comm and consumer forms 50% of the business.

- Cash and cash equivalent at H1 was Rs 1.9 bn.

- Gross margin stood at 9.9% mainly due to 1) one time cost 2) new projects commissioned 3) higher freight cost 4) lower gross margin in mobility. Other income was higher as company received interest on tax refund.

- Mahindra group contribution stood at 50% vs 51% YoY.

- Mahlog has adopted 1) growth in fulfillment & supply chain logistics 2) adoption of multi modal logistics, 3) adoption of omni channel for e-com 4) high integrated solutions and 5) use of technology. Recently the company has adopted technology for procuring material, transport management, launched HRMS and Warehousing system.

Our view

- The performance has been driven by the Non-Auto segment and also from segments like Warehousing. While some of the Auto sub-segments like two wheelers have shown decent recovery, M&HCV segment is still slow. Also, MLL's EM division is likely to remain impacted, with IT and Financial sector employees largely working from Home. We have marginally increased our estimates to factor in better performance and improved outlook in Non-Auto business and Warehousing business. We retain our SELL rating on the stock with a revised target price of Rs.264 (30x FY22E P/E).

Mahindra Logistics Q2 FY21 Result summary

- Mahindra logistics reported topline of Rs8.3 bn (down 2% yoy) and higher than our topline estimates of Rs.7.7 bn. The topline performance recovered post the impact of nationwide lockdown and disruptions due to the Covid-19 pandemic.

- While Supply Chain Management (SCM) segment grew ~6% yoy, a larger hit was seen in the Enterprise Mobility (EM) division wherein revenue declined ~71% yoy. The performance in the EM segment was hit hard by lesser requirement of transportation with large part of clients' employees continuing to work from home.

- The Company reported Operating Profit of Rs373mn, flat YoY. Margins came at 4.5% in Q2 FY21 vs 4.4% in Q2 FY20.

- As per the company, the operations gradually resumed in a phased manner with requisite precautions and improvement in performance is being seen on a month on month basis.

- Appointment of Director: The company has appointed Mr. Naveen Raju as an Additional and Non-Executive (Non-Independent) Director on from 3rd Sept 2020. Mr. Naveen Raju is General Counsel and Executive Vice President - Group Legal Affairs at M&M

- Acquisition: Acquired Transtech Logistics Private Limited ("TLPL") which provides transport management solution (TMS) to 3PL, Shippers and Transporters on a 'Software as a Service' model (SaaS) under the brand name "ShipX" amounting to Rs 70 mn. This technology platform, is expected to bring operational efficiencies in SCM function of the Company.

Shares of Mahindra Logistics Ltd was last trading in BSE at Rs.363.7 as compared to the previous close of Rs. 356.8. The total number of shares traded during the day was 5923 in over 867 trades.

The stock hit an intraday high of Rs. 366 and intraday low of 348.5. The net turnover during the day was Rs. 2126893.

Source : Equity Bulls

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