Mahindra Logistics Ltd
NSE:MAHLOG
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
358.4
545.2
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Mahindra Logistics Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good morning, and welcome to the Mahindra Logistics Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shogun Jain from Strategic Growth Advisors. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on the Mahindra Logistics Limited Q1 FY '23 Earnings Conference Call. We have with us Mr. Rampraveen Swaminathan, Managing Director and CEO of the company. Due to some exigency, Yogesh Patel, CFO of the company, could not be on the call today.
I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on company's website and stock exchange.
We will begin the call with opening remarks from the management, following which we will have the forum open for a Q&A session.
Before we start, I'd like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I'd now like to invite Ram, MD and CEO of Mahindra Logistics Limited, to give his opening remarks.
Thank you, Shogun. Good morning, everyone. I hope you and your loved ones and colleagues are doing well and keeping safe. And I hope you all have had the chance to review our results and the presentation, which is available on the stock exchanges and our company's website.
This morning, I will provide a quick update on the external environment, trends in our end markets and businesses before sharing commentary on our operations, order intake and some key corporate developments during the quarter. I'll wrap it up with a comment on our financial performance for Q1 '23 and the focus areas for the rest of the year.
So just beginning with our external environment and end markets, the external environment remains uncertain with broad indicators indicating a mixed outlook. The challenge of increasing inflation, rising fuel prices, as well as global uncertainties, which persisted through last quarter, continued in the -- continue currently. Our interest rates continue to become firmer in India and globally, and the rupee has continued to see pressure and depreciate against the dollar. While the direct impact of the Ukraine crisis has been moderate based on different industries, the trends of uncertainty continue.
On the positive side, through the last quarter and currently, we continue to see a debottlenecking of global supply chains and key components. Commodity prices have started cooling off and unemployment, especially in India, seems to be under control. The continued focus of the government through multiple initiatives have seen further acceleration in several areas, such as highway infrastructure, which continues to expand. And the Gati Shakti program is driving greater convergence across multiple areas, which impact logistics. With the development of modern technology, the logistics industry will see a significant differentiation, unified logistics platform initiatives and ONDC will further help accelerate transformation in the sector.
Moving on to our markets. The auto sector was obviously impacted in Q1 F '22 due to both COVID and supply chain issues. That's on a comparative basis, the first quarter of the year has been very strong. The sector is making an concerted effort to unbottling supply chain issues and rise above the pre-COVID level. Limited consumer confidence, particularly in rural India, a high cost of ownership and inflationary pressure continue to limit the growth of 2-wheeler sales.
On the EV front, the 2-wheeler and 3-wheeler industry have started seeing the shift accelerating, and there is increased customer preference towards EVs across the board. The passenger vehicle market continue to expand along with the increasing acceptance of 4-wheeler EVs as well. The semiconductor scenario is getting better, and we have seen higher shipments across all the OEMs we are partnering with. Despite that, waiting times, particularly in compact SUVs and large SUV segments remain lengthy. Strong bookings for newly launched vehicles indicate a good pipeline of demand, right? And we are optimistic about the fact the second half of the year will accelerate the recovery. After a weaker Q4, we saw a strong rebound in the tractor market, which continues to perform strongly due to increasing food prices, resulting in stronger cash flows for farmers.
Moving on to other markets, let me begin with e-commerce. The pandemic obviously has had a significant effect on the e-commerce industry and the crisis accelerated the growth of several e-commerce players, right, and a consumer shift, right, in terms of the way people purchase more luxury items than every day necessities. In the recent quarter, the growth has been lower in some categories compared to expectations. And in the near term, that phenomenon seems likely to continue. Our marketplaces and D2C brands are aggressively driving optimization across the value chain while also looking to leverage technology to make the supply chain more agile and efficient. The focus now has moved towards productivity and network efficiency rather than just network expansion, and most players are trying to sweat the existing infrastructure more aggressively. There continue to be network expansions actively in the quick commerce, same-day delivery models, groceries and in upcountry geographies.
On the consumer side, the durable industry has been strongly benefiting over the last couple of years, supported by the larger home improvement theme, which has paid out during COVID. Our increased input prices recently have prompted companies to raise prices to offset cost increases, right, partially resulted in demand moderation. Due to severe summers and multiple heat waves, the air conditioning and fan sectors and our customers in those segments performed strongly during the quarter.
Commercial institutions reopening and operating at higher capacities have also resulted in demand recovery in the commercial air conditioning space. Consumer appliance demand was fairly robust in April and May, but did decreased in June, right, as there was a sentiment due to rising inflation.
Although the onset of the monsoon season, they'll probably have an impact on building and renovation activities, momentum is still robust across the board. Demand growth in FMCG and personal care categories remain moderate. Like in e-commerce, most of our clients have shifted their action towards efficiency and productivity versus network expansion. The emergence of omnichannel has also become a larger factor for players to consider the design of their network.
The freight forwarding segment has seen a mixed market trends during the quarter. While overall demand still remain robust, we did see variability across patterns. And the supply situation scenario was also highly variable during the quarter. Given the challenges we saw from -- we are seeing from a supply perspective, there was some margin pressure through the quarter, we believe, across the industry, especially right in the Asian lanes. Demand and availability and outlook for the European and U.S. base lanes still remain extremely strong.
Enterprise mobility is gaining traction due to increased implementation of working from home, working from the office by many organizations. We anticipate significant consolidation in the industry going forward. And post-COVID, there will be a sharper focus on service quality and safety standards. Our business in other travel continues to grow, and this has resulted in stronger demand environment for airport transfer and transportation, both from the enterprise and B2C segments, and we expect that this trend will continue. Post-COVID, the focus on safety and security has increased significantly, and we think this is a positive headwind as strip count start edging back to pre-COVID levels. A shortage of supply due to the large -- due to a large number of driver cum operators leaving the industry during COVID, and the spike -- the increase in cost -- total cost of ownership due to BS-VI vehicle pricing and rising fuel costs has put supply pressure across the industry.
Given this context, I'll talk a little bit now about how our business performed in Q1. We continue to witness robust volume growth in the 3PL and the network services businesses and supply chain. During the quarter, the 3PL business grew by 40% on a year-on-year basis, driven by both recovery in auto and the continued volume growth across our existing sites and accounts. Integrated solutions implemented over the past quarters continue to drive volume growth in the non-M&M side and the non-auto side of the business. The M&M grew business, both in auto and farm grew by 40%, with robust growth across both the markets. Farm especially grew significantly sequentially on a quarter-on-quarter basis. Our non-M&M businesses grew by 33% in 3PL segments year-on-year driven by growth across the board across e-commerce, consumer and manufacturing. The share of solutions and warehousing grew by upwards of 60% on a year-on-year basis. Sequentially, compared to Q4, we saw an 8% to 10% growth in 3PL volumes.
Network services, which comprise freight forwarding, last mile delivery and B2B Express, grew by 20% year-on-year during the quarter -- during the year-on-year. The freight forwarding business grew at a healthy rate. We were impacted by volatility on lean demand and carrier availability, especially to and from Asia, which had -- which did put -- which carried some pricing pressure. Express was driven by continued volume growth in -- across our network, where we now directly serve over 4,000 pin codes. And last mile delivery growth was consistent, right, with prior quarters. The last mile delivery numbers here do not include the operations of Whizzard in our numbers. The aerial fleet now stands at nearly 700 vehicles, right, with a strong vehicle on-road ratio.
During the quarter, due to asset configurations and overhauls, our fleet in 2x2 remained inoperative for the entire quarter or for the large part of the quarter. Those rebuilds are going on right now and assets are being introduced back on the field. We expect that to be completed fully by the end of the current quarter. Our warehousing network remains stable with most capacity additions slotted for Q2, late Q2 and Q3. We estimate to add another 1.5 million to 2 million square feet in F '23, and we'll see additions of the last block at Luhari and new facilities in Bhiwandi and Nashik during the second quarter.
During the quarter, we also had several key account wins for large -- one of the largest quick commerce companies, we launched regional fulfillment center operations in Hyderabad. For one of the leading retail networks, we expanded the work -- the integrated distribution work we are doing and added 1 more state. We now work with them across 3 of their states operations. We launched same-day delivery for leading e-commerce delivery company in 9 cities. And we also launched a network optimization model for multi-modal transport both surface and air for a leading global pharma company.
Our overall wins for the quarter on a M&M basis carried an annual contract value of INR 200 crores. The impact of this, of course, will not be seen immediately. This impact will flow through the next 4 quarters based on the launch and commission rates of different businesses. The mobility business continue to recover -- register a recovery path, volume of airport business at Meru is up significantly and close to around [ 15% ] year-on-year, right? And the EPMS business, on a trip count basis is also up 20% to 30% across the cities we operate in. So despite our -- despite some of the overall headwinds, I think our operations remained pretty robust during the quarter.
I would like to also add some comments on recent corporate developments. Let me start with credit ratings, recently ICRA Limited has reaffirmed the long-term credit rating of AA and the short-term rating of A1+ assigned earlier to the INR 235 crore credit facilities and has also assigned a long-term rating of AA and a short-term rating of A1+ to the enhanced credit facilities of INR 100 crores. During the quarter, we also incorporated 2 subsidiaries, one each in India and United Kingdom in order to undertake supply chain management, [ find middle e-freight ] forwarding and air charter businesses across geographies outside India. The new operations will enable our company to further address growth opportunities in cross-border logistics and other market spaces, right, and will also help expand and build an international presence. Businesses in these areas will be launched through the end of this financial year.
Whizzard, our investment objective in Whizzard has been to strengthen the company's footprint and capabilities in last-mile delivery and micro fulfillment services for our customers. In line with that, we have acquired a stake in Whizzard, which operates a large pan-India intra-city distribution network for e-commerce and last mile delivery and has strong technology capabilities. This acquisition accelerates our expansion in that space. On April 8, we acquired 36% of Whizzard's paid-up capital on a fully diluted business to become an associate of the company. For Q1 FY '23, Whizzard's revenue, which is not consolidated, was INR 29 crores, up 30% year-on-year. Losses attributed to our shareholding on a net basis was INR 30 lakhs during the quarter. Our synergy programs are well underway, and we estimate that the long-term potential of Whizzard remains extremely strong and will be accretive to our overall portfolio.
Meru. In addition, we also completed the acquisition of Meru Cabs, a ride-hailing company, as you all are aware of and has a strong space -- presence in the airport services and on-call business market. This purchase will provide significant synergies by combining Alyte and Meru's capabilities and supply, technology management and electric mobility, as well as enabling services for our enterprise and B2C customers with a broader booking.
Meru has a total number of 430 vehicles in its [indiscernible] fleet, of which 250 vehicles are EVs of any recent [ vintage ] and 180 vehicles are ICE. During the quarter, Meru generated INR 22 crores as revenue and while incurring a PAT loss of INR 2 crores. Revenues grew by over 50% year-on-year and losses declined from a negative INR 6 crores in Q1 F '22 to INR 4 crores – INR 2 crores in Q1 F '23.
Our earnings reflected the full consolidation impact and the earnings for the same quarter of last year have been restated for competitive assessment. As we continue to invest in synergies, we believe operational performance and customer satisfaction will continue to see positive traction, driving greater synergy and value in the enterprise mobility segment.
Let me now quickly cover the consolidated financial performance, right, for the quarter ended 30th June 2022. Revenue for the quarter increased 36% to INR 1,200 crores as compared to the same quarter in the prior year. Revenue grew by approximately 10% on a sequential quarter-on-quarter basis. Revenue from supply chain management comprised of 95% and the mobility business contributed 5% in the quarter under consideration.
Gross margin for Q1 F '23 stood at 10.3% as compared to 10.5% in Q1 F '22, a decrease of 27 basis points. Gross margins were impacted favorably by higher volumes and cost management, while we're also being impacted by a higher mix of transportation, the limited operations of 2x2 and site softness in the margins of our forwarding business.
EBITDA for the quarter stood at INR 69 crores compared to INR 43 crores in the year gone by. PBT was up on a fully consolidated restated basis of up by 211% from INR 6 crores in Q1 F '22 to INR 19 crores in Q1 F '23. PAT was up on a fully consolidated basis by 337% to INR 13 crores in FY -- Q1 FY '23. These are numbers on a consolidated basis prior to the consolidation of Meru and the share of Whizzard. PAT grew from INR 9 crores last year in the first quarter to approximately INR 15 crores this year, registering a growth of 60%. The proportion of revenue from the Mahindra Group comprised 52% during the quarter.
Let me also share some highlights of segment performance. Revenue from the supply chain segment grew from INR 840 crores to INR 1,143 crores. Mobility segment, on a fully consolidated basis, grew to around INR 57 crores, up by 33%. Our revenue from the Mahindra Group supply chain business increased from INR 440 crores in Q1 F '22 to INR 616 crores, up around 40%. Our non-M&M businesses grew from INR 400 crores in Q1 F '22 to INR 526 crores in Q1 F '23. We also saw strong growth on a quarter-on-quarter basis. Our warehousing and value-added services from non-M&M businesses has grown from INR 130 crores in Q1 F '22 to INR 211 crores in Q1 F '23 registering a growth of 60%. Share of warehousing and value-added services in the non-M&M, SCM business has reached 40% in Q1 F '23 compared to 33% despite the stronger -- strong growth we saw in transportation services. Broadly of the non-M&M, SCM businesses, auto, consumer and manufacturing contributed nearly 35%, e-commerce contributed around 30% and the rest was distributed across multiple markets.
As you look forward, we continue to be committed to driving growth and building our strategic platforms from a long-term perspective. At the same time, we are focused on cost management, operating cost productivity and driving -- improving capital efficiency. The Bajaj [ end-to-end ] solutions project is nearing full implementation, guide as we had indicated earlier, in Q1, it was almost completed, right? Post the same, we will now -- that should now be completed in the early part of this quarter fully, and we'll now focus aggressively on steady-state margin enhancements there. We expect to see a demand uptick in our existing accounts, driven by creative volume throughput and uptake on global forwarding through the second quarter. That said, external markets remain uncertain, and therefore, we remain focused on driving cost product improvement and productivity across our entire network. The continued focus on initiatives, combined with the initiatives we have been expanding services inorganically hold us on course to execute our long-term strategy.
With this, I will open the floor for questions and answers.
[Operator Instructions] The first question is from the line of [ Damodaran Kutty from Equitas Capital. ]
And congrats for a decent set of numbers. Sir, I had basically 3 questions. 2 on margins. The first is, your unallocable expenses, they have now reached around 4.9%, which is including Meru, which seems to have contributed around 50 to 60 bps of that. So in light of this 4.9%, how would you revise your guidance which you had earlier given that it would be in the range of 4% to 4.5% on a long-term basis? So yes, that's the one on margins.
Yes. Do you want to finish asking all the questions, and I'll take all of them together, Damodaran?
Sure. The other one was on SCM gross margins. You're still -- while you've highlighted a few positives that played out in the quarter, we are still down 50 bps down on a year-on-year basis. While you had said that margins will normalize in -- by H2. What -- I mean, what additional levers do we see from current levels for margins to expand? And how far -- I mean, what would be the delta from current levels that you would want -- I mean, you would be looking at?
The second and the last one was on warehousing space. Now, I think about a year ago, you had said that there will be 4 million additional warehousing space, which is contracted and supposed to come in by Q1 FY '23. And you're talking about 2 million space additionally from 17 million. So that takes to around that -- I mean, that still leaves us 2 million short. So I mean, would love to know your comments there?
Sure. And yes, I think SCM margin. So let me start off, obviously, with the unallocable expense number, which you showed -- which you kind of referred to. So I think, as you know, Damodaran, we don't give specifically any guidance, but I think from a -- I would say from a broader aspiration perspective, if you would like to call that out, I think that remains consistent what we had earlier disclosed in pretty much what we are aspiring to do, right? And I think, obviously, you will see the impact of consolidation and acquisitions, which are -- which have to be added into that. And we can share out -- we can share the pullouts and kind of work with you to help you better give you that clarity, right? But from a broader aspiration perspective, as portfolio has stabilized, despite the acquisitions, we expect to be at the same level.
If you look at the warehousing question you had, I think we ended F1 '22 with around 17.5 million. And that's when we kind of said that we have 4 million which is going to get constructed over the next 12 months. And we have another 2.5 million, which is roughly under -- which has been tendered -- 2 million plus, which has been tendered. And if you actually look at it from that period onwards, our pure warehouse, excluding stockyards, has already grown from 11.1 million to 13.3 million.
So 2 million -- 2.2 million of that has already been completed. And as I mentioned earlier, we have another 2 million, which is going to -- which will get out -- get done in the near term. We are having several launches, which will come out or go-lives, which will happen later this quarter itself, right? Those projects, constructions are a function of multiple things, Luhari, for example, the last block was delayed because of weather issues and government regulations around that.
And with commodity prices going up substantially, we've had to renegotiate, many of our vendors have come back for price increases, which we have to negotiate downwards again, right? So those have resulted in some delays. But the 4 million, which I had said in Q1 last year, which is also covered in our annual report and our Chairman remarks, those will be completed this year.
There will be some additional pre-scope warehouses which happen along the way. Another 2 million, as I said, has already been tendered and is getting into construction right now in a second phase network expansion in existing and new locations.
The big delta you have to adjust there is just a [ back that ] we had continued to reduce our stockyard capacities. We are driving more automation and technology across our stockyards to actually drive more volume throughput with lesser space, and that's a long-term trend, which you see will continue, but will actually help us improve our margins in stockyards, which generally has been a very low-margin business for us.
And lastly, I think as far as your supply chain margin comments concerned, I think the way to look at, obviously, is during the quarter, we had, on a year-on-year basis, around a 30% increase in our transportation business, right? And so that remains a very large part of our overall volume, right? And that includes some of our network services businesses, which are expanding, which we're still investing, like freight forwarding, like B2B Express and last mile, which are lower than our average margin, and we are expanding that.
So it's really mostly been a shift mix there, which has resulted in that drop of, I think, around 30 basis points year-on-year, right, in the supply chain margin space, right, 50 basis points, corrected in the supply chain space. But most of that is really a call out of 2 things. One is the shift in margin in mix.
And the second one, which is there is that, during the quarter, if you see the detailed schedules and accounts, you will find that in 2x2, we actually had a loss during the quarter because we were basically rebuilding those assets and that had an impact. So a couple of those things actually mix and 2x2 were the larger factors which drove the decline in gross margins. Otherwise, we would have probably been slightly higher than the same quarter last year.
I don't have the exact waterfall with us -- with me right now, Damodaran, but we'd be happy if you contact our Investor Relations team, I think they can share more context with you.
Sure. Just one clarification on the 4% to 4.5% guidance. Is there any time line for that by which we'll achieve that?
And on the SCM, will the current sort of mix continue to persist? Or will there be a mix change, which will also add to margins?
So I think this year -- let me -- I think the first one, to be honest, Damodaran, I will be perfectly candid. I don't actually remember when we gave this out specifically in terms of a quarter or a time. As I said, there is no specific -- there's no guidance, that's an aspiration we have. And we'll get back to you on that specifically, right? We'll just check our notes and be sure before give you a specific comment.
As I said, the aspiration is still in that range. I think this year, as we have said earlier also, Damodaran, as the automotive recoveries come through, automotive is much higher of a transportation business than a warehousing and solutions business. So as the automotive businesses comes in, we will obviously see a skew towards transportation, and that will weigh in on the margins, right, in terms of a mix impact.
This year, right now, while we've had good order intake in the first quarter, as I said, uncertainty still remains, we'll have to see how the peaks go this year, right? There's still a lot of callouts and possible ups and downs. And therefore, I think this will probably be a year where we'll see higher transportation growth than we have seen, and that will have some impact from a time period in terms of the margin mix.
The next question is from the line of Depesh Kashyap from Equirus Capital.
Sir, firstly, given the recent so and so launches by M&M, if you can give some color on what kind of growth visibility you have for the M&M, SCM segment specifically for this year?
And secondly, I just wanted to clarify that the INR 22-odd crores revenue of Meru Cabs that you have booked in this quarter, is it the full quarter revenue or the revenue since acquisition, that is 17th May?
And lastly, your EMS Alyte segment, right, that still looks to be operating at 30% of the pre-COVID level. So if you can give some color on how you expect it to grow going ahead?
Sure. So I would -- so let me kind of answer all of those. I'll start with the first one. I think, obviously, M&M is our marquee customer, and they've had -- I think they have had some pretty strong launches, 3 great blockbuster launches, really, I think something which -- as part of Group leadership, I am obviously very proud and excited about. At this stage, I don't think the -- has there been strong traction and M&M is seeing volumes grow given their -- I think, debottleneck supply chains. I am not in a position to have a specific view on how their volumes will move, right? What I can say is that, we do expect to see, in our business, a higher volume growth of movement from the Mahindra business, as well as good volume growth in the non-Mahindra businesses we work with on the automotive side. But I don't have a specific guidance, Depesh, on how volumes will move with the new launches, right?
As far as your question about Meru is concerned, I think the INR 22 crores is the full quarter revenue. It is the full quarter accounted revenue and the platform revenue of the business and reflects that fully.
And the third question is you had was in EM. Net of Meru, the EM business is running at around -- was around INR 35 crores in the quarter. That's approximately 40% of the peak pre-COVID periods. What we are seeing is that, while trip levels have actually come back to higher than 40%, but one of the things that you're also seeing, Depesh, is just shorter terms. Before COVID we used to have lot of people, for example, going from Noida to Gurgoan, expecting NCR as an area, we'd have lot of people move from Noida to Gurgoan, for example, right? So -- but that's not happening so much. The trip counts can come back, but the kilometers have not come back fully, right? And therefore, we are seeing that counts going up by 20% to 30%, which is why I specifically mentioned trip counts in my comments, right? But that's not actually translating to revenue because the kilometers are not growing so much.
On the positive side, almost all our accounts, I think, are coming back strongly in terms of declaring work from office. But it will take, I think, another 3, 4 quarters before it becomes a place at that point where everybody comes almost every day to office. And that's kind of the volume we need -- that's what you need to see to get ETMS back to historical levels.
The next question is from the line of Mukesh Saraf from Spark Capital.
I had a couple of questions. First, just going back to your warehousing space. This quarter was 13.3 million square feet. And I think in your opening comments, you mentioned that you'll add about 1.5 million this year. Do you think it's a bit too conservative, especially given your long-term target? I mean, you had a 5-year target in, say, F '21, saying you will probably add 20 million square feet around that number. So how do we look at that target vis-a-vis slightly muted growth that -- I mean, that we believe this year in space addition?
So Mukesh, I think the way I would put this is that, we are pretty -- I mean, if you look at the 20 million, we are pretty much on target to get there by middle of next -- early next year. And if I actually...
No. I think addition was -- yes.
Yes. So addition, we said over 5 years, we'll probably be in that range. And I think this year, we will -- overall in the year, if you add the first quarter, right, second, third, fourth quarter, I think we will add around 2 million this year, right? We've had some movements which are moving around because of the inflationary environment. As I said, we have already contracted another 2.5 million. Now, bear in mind, Mukesh, this is all are -- these all are some multi-client facilities. This excludes capacity additions we do on a bespoke basis. right? So the bespoke basis is driven by how demand moves, right? As we get more projects, which require something to be added, we obviously will continue to add that. But we're also trying to drive a lot better yield on our warehouses, right? So by driving better productivity, faster transition of -- faster velocity through our warehouses, we're also trying to increase and expanding yield from the facilities. But the long-term vision remains the same, Mukesh. There's no conservatism on it.
I think given the broad inflation which has happened across some of these -- on some of the commodities in the last 3 to 6 months, we've had to go back and recontract or renegotiate several of our facilities and slow down a little bit of the contracting. But as I said, we've got another 5 million actually, which is in construction, right, 2 million will happen this year, another 2.5 million is being contracted. It should happen somewhere in the early part of next year. And I think you'll also see us increasingly going down to smaller cities, right? So we are launching in Guwahati, in Patna and Lucknow, we'll be launching in Nashik this quarter. So we're also going in that second level expansion, which I've talked about earlier, will also continue to happen.
Right. Understood. My second question is, when I look at the annual report, you had mentioned in -- that the freight forwarding, B2B Express and last mile, these 3 business together are now 20% of your overall revenue. And probably having more than 1,000 [indiscernible] is on the part truck load business. So how do we look at these segments? I mean, because we're focusing, obviously, a lot on the SCM side of it. But if I kind of step away from SCM and look at these other businesses, a large in freight forwarding and the B2B Express and last mile. Can you give some trends on the growth there, the profitability there?
Sure. I think, Mukesh, I would say that, the way I would -- I think for us, the 3PL business and the network services businesses are the 2 good broad constituents of supply chain, right? So supply chain in turn first is broken into 3PL and the network services business. The network services business is a -- it's not a lumpy business. The 3PL business, the business which move as we add projects, you will see the full revenue of the project starts coming up within 3, 4 months. And therefore, you actually start -- you see some of this lumpiness in growth, whereas the network services business, it's really a fractional business where you're doing small volumes with each individual customer, and therefore, the growth tends to be more consistent.
And so if you go back and look at our volumes, our revenues over the last 8 quarters, they've been growing every quarter. It's not -- you don't have flat -- slow growth and then suddenly a high growth. The trick in our base is to actually continue to see growth there. And we remain -- it's roughly 20% of our revenue. I think I mentioned earlier that our long-term vision is that, it should probably go up at 30% of our revenue. And we remain very optimistic about the opportunity and the potential around those businesses. And our ability to take those business and combine them with 3PL and give customers unique value props, right?
Now, from an earnings -- so I think -- for us, the 20% growth is actually good because it's consistent with the kind of growth curve, which we have been maintaining and the ability to do it every quarter, I think, is critical, right, quarter-on-quarter, and then expand it is kind of the right way we are looking at the business, Mukesh. I think from an earnings perspective, I think you will see the large numbers. Large has been -- has come from a low base. We have actually been able to raise through pricing discipline, increased scale, being able to get that margin up to a curve where the margins are actually better than the rest of our 3PL business -- in our 3PL business.
The B2B Express business and the last mile delivery businesses are not at the same earnings level. We are investing in building the network in those. And just like we did in LORDS, it is a 3-, 4-year window before you actually start building those -- I mean, start seeing kind of the sweet spot in terms of margins. So that's the investment we'll continue to do as we put revenue growth and capability development.
Right. And just a follow-up. Lastly, I mean, you mentioned that the margins are not yet there for the B2B Express and last mile, but do you think potentially these can be higher than the core business margins that we have right now?
Yes. So I think if you look at -- I mean, our goal really is -- I think if you look at industry comps as well, Mukesh, I think you will find that the network services businesses are at a higher margin, and that's kind of what we are -- our aspiration to beat as well. In fact, our aspiration is to really say how we can take the 3PL business and the network services business and integrate them together into solutions for our clients. And that's where I think the magic -- believe the magic will really happen. So that is both obviously a segmental earnings potential, Mukesh, but there is the value of integration, which we have seen playing out in several accounts as well.
The next question is from the line of Manoj Bahety from Carnelian Asset Management.
[Technical Difficulty]
Mr. Bahety, your voice -- we cannot hear you properly. Can you please repeat your question?
Is this better now? Hello?
Sir, there is a slight disturbance from your line, which is coming along with your voice.
Is this better now?
Yes.
Yes. So Ram, I have 3 questions. First one is, if I look at your margins, I think last 2 quarters, there was some impact of a few of our customers operating at a lower operating level and which was impacting our margins. So going forward, how do we see the sustenance, as well as the improvement of margins from here, looking at the way the competition is there, whenever you get a new customer? So do we expect that this margin volatility will continue or just operating scale benefit coming back, you see a gradual and sustainable improvement in the margins?
Yes. So I think there are 2 different -- probably 2 different questions, Manoj, but let me answer those both. I think in Q3 last year, we obviously did have lower op levels at many of our sites that was on the back of, frankly, a weaker peak than I think [ many of us ] expected, right, and because of the way the configurations were. We have, since then, as you know, put a lot of effort on that. And I think now most of our facilities are actually seeing stronger throughput. And you would see, for example, that warehousing and solutions revenues grew by around 15% sequentially, around 13% -- 13% to 15% sequentially in the year in the first quarter, even though capacity was flat, the total amount of space was flat, right? So that's kind of the work we are doing to actually get better throughput and velocity. So I think most of our assets right now are operating, I would say, at peak levels. I don't see that any more as an issue.
If you see from a market perspective, markets are tight really because, obviously, pricing is competitive, and we are in an inflationary mode right now. And so that's kind of -- that's always a difficult place to be, and we are seeing high inflation environment with a lot of pressure from customers and competition on pricing. Thus far, I think what we have done is we have continued to invest a lot in both in differentiating ourselves and ensuring that we put in better pricing discipline. And therefore, we fully expect that these margins will kind of hold themselves. In fact, we're actually committed to the broader improvement we said as well, Manoj, which is that, on a mix adjusted basis that we actually hope to see 30 to 50 bps improvement every year. And that's something which we remain committed to as well, right? I think there's a significant amount of leverage we have in terms of continuous improvement in our business. And obviously, we have to be very careful about the way we contract and maintain good pricing discipline on the demand side. But that's kind of what we are hoping to -- continue to deliver, Manoj.
Sure. My second question is on your strategy. I think earlier you have mentioned that last mile delivery is a business which is not profitable. So Mahindra Logistics, I think initially stayed away from this business. Now, I think we are entering into this business. So do you think that in the medium term, investors can expect that some kind of margin pressure because of our entry into this business, which earlier, I think we were refraining, right?
Yes. So I would say, Manoj, I don't think we have had said. I mean, I need to calibrate what I think we said as a company, we said that we are -- that margins in last mile delivery remain extremely challenging, and we are investing in building a playbook to be able to win that space, right? And I think over the last 2 years, we have invested in building that through a combination of doing distribution as a service and not just delivery as a service. We just don't want to do play in bikers going in rock and stuff. We actually try to run the hubs, the delivery station and do integrate that with delivery. I think and with an -- doing more of that and building an increased focus on electrification, we now believe, I think we have a very good playbook, right, on last mile delivery, and we have line of sight to target margins over 3, 4 years, 2, 3 years, right?
So with the Whizzard acquisition, we will continue to -- we feel good about the opportunity to get scale because that is the largest space -- frankly, in e-commerce and other parts, it is a very large segment, right, last mile delivery. So I think now we've got a playbook in place, we are actually now in the process of executing that playbook, right? Building deeper micro fulfillment capabilities, investing a bit more in tech and expanding the network. But our unit economics are actually fairly good. And therefore, we think, as scale builds out, we'll be able to now get the type of target margins we hope to have.
Sure. And my last question is, in fiscal I'm not able to understand why Mahindra Logistics is doing capital allocation, as well as bandwidth allocations towards Meru. I'm not able to understand any kind of synergies between your business and Meru. So just wanted to understand what is your game plan for Meru, like you are just holding it for the medium term. Eventually, it will be like sold off. So that is one thing I need some color from you.
Yes. So Manoj, I think -- historically, I think there have been synergies between the businesses, there are some amount of overlap in terms of customers, the mobility business. And I'll first address where there is synergy and where there are no synergies, right? So there are some synergies which are there. I think they are mostly twofold. I think on the non-IT customers, there's a fair amount of common overlap. Like we do business in mobility for a GE or for an e-com customer, right? And we do that in mobility and in supply chain. So there are some overlaps in terms of go-to-market.
The second piece actually has been procurement. The -- one of our strengths, I think, we believe, across our business is actually both supply chain and mobility is our ability to drive procurement and scale and leverage our partner network we have across multiple service lines, right? So we have many partners who do multiple things. They do intra-city trucks. They do car carriers, they do full truck, the 25-ton multi-axle vehicles, right?
So that partner base is something which is very important. So those are 3 areas of commonality or synergy, if you mean. There have also been areas of the divergence, right, because the business is more tech or IT services driven. Obviously, the asset classes are very different. It's very different. The terms of winning are actually quite different.
So we have actually developed -- we developed a strategy 2 to 3 years ago, Manoj, which I think I've shared earlier, to really be very focused on doing 2 things: driving increased presence in the enterprise segment and driving more supply-driven synergy and margin expansion. That was a strategy we developed before COVID. And, of course, COVID happened. So we've actually had to anchor down, right? In the long run, I think the business is something which still we believe has very favorable macros.
Now, it's not -- operationally, is that, it's not a very significant divergence for us. The business pre-COVID had very good return on equity. And it does not consume capital at the cost of the supply chain business. We have a strong independent team, which now has been integrated between Meru and Alyte. And that integration is one of the things which has helped drive earnings improvement across Alyte and, of course, Meru, which you can -- which I've already alluded to. So I think in that sense, it's not a distraction. It's a part of our portfolio. I think over a period of time, the Board and the management will continue to review what is -- how well it fits the rest of our portfolio. And I'm sure the Board will take consider decisions on that.
Yes. Ram, my only point was when you are having such a large opportunity in such a complex business, so I think your bandwidth can be better allocated by handling the complexity of existing business rather than entering into a Meru kind of business, where other than commonalities of customer, I don't see much synergies. So that is my view that I think. Yes.
I appreciate your feedback, Manoj. And I think it's well noted. And I can assure you it's one of the industry debate quite often.
[Operator Instructions] The next question is from the line of Sumit Kishore from Axis Capital.
My compliments on a very strong growth performance in Q1. My first question is, is there anything in government's ONDC or just Open Network for Digital Consumers for Mahindra Logistics as a 3PL and network services play, would you be integrating your 3PL with the government's ONDC?
The second one is both a suggestion and a question is that, given you speak about Meru's numbers, 2x2, LORDS, Alyte. Would it be possible to have a slide where you put revenue, gross margin, EBITDA profit for all these entities will help us appreciate your performance better. And so [ yield ] a lot of questions. Similarly, on network services, freight forwarding, last mile, Express B2B, it would be great if you can have some color on these metrics on a slide because you yourself speak about the growing importance of network services in terms of revenue share going forward.
My second question is on the strong operating leverage that you have seen with the top line growth during the quarter, your thoughts around that and is there more scope for operating leverage led margin gains?
So Sumit, let me -- I think let me address the first one. I think we are obviously continuing to work on, I would say, the open logistics, network interfaces, not just in ONDC, right, but unified logistics, protocols and [ models ] and what opportunities it presents us. And I think at this stage, while we don't have anything specific to announce, I think you will see more action around that clearly from us in the coming quarters. Right? Overall, I think I would say that ONDC is a very positive move.
And then in an industry which is very fragmented, I think it provides stronger accessibility across discorrected customers. I think, of course, it will be great if ONDC also drives better standard setting in service levels, which as you know is one of the challenges in our country is that, as an underrated industry, logistics carries very low standard thresholds.
And that's one of the things which creates a very wide pricing corridor in our industry, right? But I'm sure the government is -- has got the feedback from others as well. And some of the work which they are doing already, I think, setting logistics infrastructure and so on is having steps in that direction.
As far as I think your suggestion is concerned, I think that's very well taken. And we have been increasing the level of information we've been sharing on the businesses, both in terms of market, account wins and so on. But this is a split which we'll work on and provide you. I think definitely, the entity roll-up is something which you can clearly -- which we will work on sharing with you because I think you will be able to clearly see what is stand-alone versus the roll-ups. Most of the roll-up businesses are very specifically either in mobility or network services. So I think that [ continues to go on ], but also partially help you understand the third thing which you asked.
And the Investor Relations team, if they can send across some of these details which you mentioned post this call would be very useful.
Sure. Can you just repeat ideally the last question, could you just repeat it? I'm sorry.
Yes. So we saw a pretty strong operating leverage in -- the gross margins were a bit impacted, but your operating leverage has paid off well. So just want to understand, given the momentum on growth is likely to continue. What are your thoughts on operating leverage? And what exactly is driving that?
So I think our leverage, we've got 2 elements of leverage. One, of course, is mix. I think you have to look at any gross margin on a individual mix and kind of roll it up because when you have large movements in volume, I think it's an impact. So if you actually look at what happened in the year, if you look at how it happened year-on-year, I think the transportation business grew by INR 207 crores, while the warehousing and supply chain business grew at around INR 75 crores or INR 80 crores. So even though the growth in supply chain and warehousing was faster on the index level, obviously, in the mature growth of their transportation it's going to reflects the growth of warehousing. So you see that play out in the gross margin level.
From an operating leverage perspective, I think our big leverage is actually in the warehouses of [Technical Difficulty] facilities we operate, Sumit. And there, it's really from 2 things. It's really from the productivity of our workforce and how much more we can do with less really by using automation, by doing more mechanization, right, by doing improving dexterity of our employees.
And the second one is, how much -- how we can design facilities to actually run far more throughput, right? And that allows us to condense the space we required for operations and leverage with the yield per square feet a lot better. Those are things, Sumit, we have been working on in the last 3 to 6 months. And I think those remain as opportunities for us, right? That's part of the point we have talked about earlier. That said, I would also say that in an inflationary environment, your supplier power is always higher, right? So we are -- the challenge of being in an environment where if it is inflationary on the cost side and slightly inconsistent on the demand side, right? And therefore, the leverage often is hard to monetize fully, right? And a lot of that leverage is what's going into view, my comment earlier to Manoj, I think, that we are confident that despite some of these things, we'll go to hold our margin, right? So that's more to be done. But that's kind of where -- that probably would summarize my thoughts on it, Sumit.
That's very useful. Just one last point on freight forwarding. We see that seaborne freight rates, et cetera, have all come off quite sharply of late and they're actually down on a year-on-year basis also. So does that have any implications for your freight forwarding business in terms of margin performance going forward?
So obviously, I think softness does affect our revenue, right? I mean, the same thing happens when fuel prices go up. So I think that is an headwind, if you may, from a revenue top line perspective, not so much from a margin -- percentage margin perspective. I would also say that, I mean, our own forecast is that, last quarter, we saw some softening on ocean lines or prices on specific [ e-lanes ], Sumit. We expect that towards the second quarter, we actually think firmness will start coming back, right, on lane pricing. So I don't expect -- right now not expecting that to be a big -- expect it to be a tactical issue for the year and not to be a very strategic issue.
Got it. And wish you all the best.
The next question is from the line of Sachin from UTI Mutual Funds.
Sir, 2 questions from my side. One is more to do with this non-stockyard warehouse space that we have. Now, how do we understand per square feet revenue profile or margin profile of this business? And eventually, the ROCE profile of this business? That's the question #1.
Second question is more to do with like our parent, which follows a strong discipline about some of its businesses, where eventually, it wants most of its business to graduate towards high ROCE businesses. Now, what's our thought process regarding some of our subsidiaries and some of the new ventures that we have got into? Do we -- will we follow the same approach for them? And maybe if you can also help us along with this any capital allocation plan that you have towards them? Just 2 of them.
I'll deal with the second one first, right? I think, first of all, all the -- I mean, we have clear investment hurdles as a board and all our businesses, whether they're consolidated or whether they're stand-alone or subsidiary, I can tell you actually have the same [ sort ] of earnings expectations and there is no divergence in that from a governance perspective.
Now, each of these businesses, I think, comes off at different levels of maturity. And I think one -- and what we look at is, what are the earnings at a maturity level. So if you look at the LORDS, the forwarding business, the forwarding business 3 years ago was extremely weak on earnings, right? But today, we've had -- the business has built scale and has built a value proposition and now actually has an ROE which is actually favorable -- more favorable than all our -- many of other businesses in the company. So I think we expect the same curve to be followed in each of the subsidiaries because they are just divisions of the company, like the way we operate them. So we would expect -- we expect Meru and the mobility business to get into the same thing.
From a long-term perspective, we expect our investments in Whizzard or last mile delivery to actually yield the same kind of returns. 2x2 was a business which was actually getting into that zone in 2019-'20 before the automotive hit happened and when the automotive decline happened, obviously, we saw a significant downtime, right? And then as last year fuel prices increased, that also became a double whammy. We did -- of course, we have consciously chosen to rebuild to kind of upgrade all the assets as they're aging and get the fleet in better shape, which is why there has been a bit of downtime last quarter. But the earnings targets were the same, and I would say that from a long-term perspective, that's the expectation, we -- our management and our Board has and that we actually are delivering similar returns across all the businesses, and there's no difference between them.
To your first question, I think around the way we should look at warehousing, I think that's a great question, especially with AS 116, I think warehousing has been -- obviously, the way we are accounting for it has all changed, right? So first one obviously is a pure gross margin and typically on vehicle assets, which are more than 11-month leases, we are obviously generally carrying -- accounting under -- we are obviously accounting everything under 116. So there is an AS 116 charge, which is there.
So I think the first you have to take is look at the pure gross margin, adjust the AS 116 charge and then adjust the right to use, depreciation and the interest which those assets are carrying, which is underlying those leases. And I think you will actually then be able to find comparable gross margin in that sense, comparable margins in that sense, right, and then be able to look at the return on capital employed of that.
So that kind of an buildout which has to be done. That you need to do internally to obviously look at the value of the -- each project actually, right? So that's one thing which has to be done. So you have to adjust for AS 116, adjust obviously for the below EBITDA line items more in terms of on the right-to-use assets.
The third way I think to look at warehousing is to look at saying what is the integration value it provides for transportation because I think you have much better control of your transportation and your ability to optimize transportation and you control the nodes of which design the network, right? Because warehousing -- transport -- trucks are normally plying between warehouses and from warehouses, right, to customers. So the more you can actually control and design the architecture of the warehouses, the more leverage you have on optimizing the way you are able to get transportation and the margins you make on the transportation business. So that's what we call integrated solutions.
And so that's the third leverage of the return on equity of warehousing is -- for example, we invested a lot in Luhari. We have done that because it's 1.5 million square feet, but it's also a gateway to 30% of India's population or 28% of India's population, right? So what it does for us in terms of being able to optimize outbound transportation from that facility and optimize it is quite significant. So those are 3 dimensions of, I think, how you typically want to look at the value of warehousing on a stand-alone basis and as well as a portfolio. And I think if you want a little bit more color on how we touch -- how we look at it, I think to reach out to our Investor Relations team and Yogesh, they can share some of that with you.
The next question is from the line of [ Pradyumna Choudhary from JM Financial. ]
So I have 2 questions. The first one is related to the B2B Express business. So you spoke about how for the next couple of years, we'll be investing here. I just wanted to understand where exactly would we need to invest? And like how exactly are we planning to scale up and become amongst the bigger players here? And what exactly is the value proposition in the B2B Express business compared to our existing 3PL business? So this is the first question.
And the second one is more on the competition in the logistics space. So we see that recently a listed peer, which is strong in the B2B Express space, they mentioned that they might want to consider entering into the 3PL space sometime in the future, then we had a very recent listed peer, which is strong across all the -- across most of these spaces, and you are also talking about going back in the B2B Express space. So how do you see the industry panning out in the future? So yes, these are my 2 questions.
Pradyumna, and I think I'll just say a couple of things that you have hit broad questions, but from a competitive perspective, I think almost everybody in the industry in some form is multi-service, right? I think almost all logistics firms are either a 3PL company or a network services company, right, or a combination of these. And as you tried to -- I think most companies at scale have that intention of having multiple services there. That's true in India as well as globally. Even if you take large players, so you have some -- even if you take a pure parcel company or an express company, they actually will have a supply chain services business, a freight forwarding business and a few other things, right? So you -- I think -- so that's the nature of the industry. I think the key thing which differentiates it ultimately is saying what drives -- what's the ability to convert that whatever you are stating to actually value from a client perspective. And how does it actually drive margins and margin expansion for the business.
Now, for us in the B2B business, I think there are 2, 3 things which are there. I think the first one is, we are very focused on what I call service quality, which means that we want -- we are very focused on ensuring that we deliver products safely, properly on time. There are no damages to it, no shortages, right, no interchanges and so on. So that service quality piece is a big part of our focus and our proposition.
The second part of our proposition is our integration because if you are often using an express service to move material in and out of a warehouse, right, which we are already operating today, right? So that saves the customer a lot of headache because then they actually have to hold only one company accountable for both pieces. Otherwise, what they are doing is they're saying, I'm going to have to hold company accountable for the way warehousing does, then the handover is something they have to manage and then they have to hold the express company accountable for the second piece. So our second part of the value proposition is the ability to both bundle and integrate this for our clients, which gives them more convenience, more accountability from the network, allows them to get better cost control and transparency and visibility around costs. So those are -- that's the second part of our value proposition, which is there. And that's kind of what we've been trying to drive to grow our express business.
The express business is a bit difficult from a 3PL business. The 3PL business is more like a project business. We design a solution, we sell it. We build that solution, and we start building that solution after we win the contract, right? We win a contract, which had a multi-client facility, we'll build out that solution there for them. The network business is -- the B2B Express business is a bit different. You actually have to run the network, whether you have demand or not, right? So you actually have to expand the pin codes, right? You have to actually build -- you have vehicles plying consistently between these hubs. You have to build out hubs and you have to then have a proper scheduled operation between these hubs to actually get service levels up. So investments we are making in the business is really that, is we're expanding the network, running -- building better throughput and network accessibility and then investing in technology, which will actually help put all of this together, right?
And so you see most express companies have an investment curve before they actually hit maturity. What I can tell you is, our express business has -- like all our businesses, generally has positive unit economics. We have investments, obviously, on the utilization of the network and how we are building it out. But transaction -- all our transactions, we don't -- we do maintain a pricing discipline that we don't do business below unit -- at negative unit margins, right? So now it's really about how we scale up and how do we build the network to build to support that scale.
Ladies and gentlemen, this will be the last question for today, which is from the line of Pranay Roop Chatterjee from Burman Capital.
Great. So I had 2 broad questions. So firstly on margins and second is on revenue growth. On margins, Ram, firstly, I think a previous participant had requested some incremental information on some of your new businesses, especially given freight forwarding has become pretty big now. So it will actually help us understand margin trajectory because right now, I have collated around, like, 8 points, which have affected your margins in the last 2 to 3 quarters, and there are not many moving parts right now.
So it's very difficult to figure out where the business is heading. For example, I think the fundamental thing is that, what our understanding is warehousing gross margins are higher than your external transportation margins, which are slightly higher than your Mahindra & Mahindra transportation margins. Then you also have operating leverage coming into play, basis volumes. Then the staffing issue is temporary, so we can discount that.
Then you have something going on with 2x2 Logistics as well, which impacted last quarter and like you said, this quarter as well. Then freight forwarding, you had mentioned is EBITDA accretive, at around 5.5%. So that is one aspect. Then express and last mile is dilutive, understandably, because last mile is at an early stage. Then you had some impact of Bajaj as well and then finally, fuel price impacts, right?
So again, I don't want you to discuss all of these points, but given what you see right now in all these criteria, in the next 2 to 3 quarters, so what can we expect in terms of the direction of margins because it's extremely difficult to predict, basis all the levers, none of which are actually in the public landscape?
Okay. So Pranay, I think you've done a great job, I must first compliment you on capturing all the puts and takes of our business as we keep shuttling portfolios and moving stuff, right? And I understand a little bit of the ambiguity which is there in some of the stuff. And so I think as I mentioned to the earlier question, we will -- I mean, you heard from Sumit in Axis, we will try and put out a deeper clarity on the businesses.
Now, in terms of -- I think broadly how it would look at in terms of outlook, I expect that we will not really -- either the Bajaj thing, which we had said earlier on, and I think the start-ups in general, which we had called out, Bajaj is the largest spot, I mean, that's going to be there as well, a bit will carry over into this quarter. But otherwise, that program is stable and there's no burn on it in that sense. And we'll then start focusing later half of the year on -- or expanding those margins out as per our kind of solution design and plan.
I think forwarding -- I think the network and 2x2 was a temporary issue, because it's a conscious choice for us to build out the assets. And therefore, we don't expect this issue to continue through the third -- second quarter of this year, right? By second quarter, all the fleets will be deployed. So that's a temporary thing, which is there.
I would say that forwarding and I think last mile and B2B are investment areas. So I think once we show you that picture, I think as we've probably discussed earlier, you will be able to do a better -- you will be able to better understand how that whole modeling -- how to kind of -- how the constituents of the chess board stack up. I think broadly, I think from a margin profile perspective, we have said that the FTL transportation business has a lower margin profile than our warehousing business.
The pure warehousing business has a lower margin profile than our solutions business, right? So it's kind of a margin ladder. However, the one thing I would point out is that, we -- I don't think it's not -- it will be inappropriate, in our view, to say that the Mahindra transportation business has lower margin than non-Mahindra transportation business.
As you have said earlier, I think to you as well, Pranay, and another question is that, we essentially bid the pricing based on account, right? So if we have 2 customers, if there is a Mahindra moving from Haridwar and somebody else is moving from Haridwar, which is roughly the same, the pricing they will actually get is roughly the same. Right?
So it's driven by service line and volume density. So it's not an overall thing that Mahindra is lesser than non-Mahindra. I think it's driven by service line, lane, et cetera, et cetera, right? But I will -- but as I said, we will call out and do the categorization of it and share that and I will make an attempt to share that in the coming quarters, so you are able to look at that broadly.
From an overall outlook, I expect volume to be strong in the second quarter, right, to maintain trajectory in the second quarter, both in terms of -- from an outlook perspective, what we are seeing right now is generally the same tailwinds we saw in the last quarter are persisting in this quarter. I do believe that there is some uncertainty in demand as you look at going out because of inflation and because of steady softness. So this year's August will be very important. August peaks and demands are fairly indicative of how the industry will move. And therefore, we will have to see how the peak will happen. Q3 is normally an important quarter for us in terms of growth. So there is some moving parts there, which we are optimistic, but we can't confirm that -- we have a great Q2 outlook, right, in terms of tailwinds right now.
But right now things are holding up, and I think we are optimistic about Q3 and Q4. As I mentioned earlier, we had an ACV, annual contract value, in terms of non-M&M order wins around INR 200 crores in the first quarter, which is very robust in terms of our pipeline, which will be executed through the rest of this year. But that's something which we are hoping to sustain from a win perspective.
Got it. Second question...
Pranay, I think I just had addressed all the 8 things you asked. Probably I didn't do them exactly the same order. But I think you [ said ].
On the revenue growth, I think you already partially answered that, but I'll just structure my question anyway. My question was more around the lines of -- in your annual report, I think it has already been called out and discussed that 20 million square feet incrementally within the next 36 months. So I think we are already lagging it. So my question is slightly different. When you did this math, right, where you need 20 million square feet extra, you also had your vision in mind, the INR 10,000 crores vision. You must have done some demand forecasting at that point of time. Now, what my hunch is that, the demand that has actually played out is actually materially below what we would have forecasted at that point of time, because of which the additions is not much, which obviously makes business sense. If there is no demand, we won't add network.
Now, incrementally, in your opening remarks, you also mentioned that everyone is focusing on network efficiency rather than expansion, which also -- which is also a sign of things slowing down and people looking at the cost more than the revenue, right? So the larger question here is, do you see a change in the larger warehousing story temporarily? Or is this a blip of 4, 5 quarters that you are seeing?
I think it's a blip. I think what we really said is that -- I don't know if we said 3 years, I just -- to be honest, I'll just check that again because it's not -- really resonates with my memory of the annual report. I don't want to say you're wrong. So let me just check that. But I did think -- but I think you're right. I think we said that we have to add 17 million to 20 million square feet, I think, in other forums as well to support that vision for growth, right? And that would partially come at the cost of the stockyards going down.
And that is still pretty much intact, I would say, in terms of the fact that we had to build the network to support that growth, Pranay. I don't think that fundamentally changes. Obviously, as we improve yields on our warehouses or if demand softens in specific bits and pieces, we may see that number moving around. But our intrinsic desire -- and I think I've said this again and again, is that, we don't see warehousing as the end. We see warehousing as the means to an end, right? And the end is providing more value-added solutions for clients and building networks and not just doing transportation -- plain Mahindra transportation of warehousing.
Building capacity is a very important step in doing that, right, which is why we have done it last year and this year despite the AS 116 impact, we continue to make the investment. And I don't think that will -- that direction fundamentally remains unchanged. There are some blips which will happen along the way, right? Some of it, as I said, is not just demand. Some of it's also been -- we've gone through a phase of recontracting and holding our contracted prices or almost holding our contracted prices at many of our facilities because commodities went up very sharply, right, in the last 2, 3 quarters. And so many of our partners, right, they wanted to re-discuss that, right?
And I think what we said is, we want to build on 12 million square feet of build-to-suit warehouses by F '26. We are at around 3.5 million now. So that's -- we got 3.5 million, 2 million is coming this year, 2 million more is under construction or that has been contracted. So you are kind of in that exact range. But what I will do is, we'll take this and come back to you. I think, I mean, our Investor Relations team has your contact. So I will get them to -- let's call that out with some clarity.
Got it. And just to close out the call, I think I had one question for Yogesh. I'll just drop it in anyway, and I'll reach out separately is that, if you look at it on a year-on-year basis, right, your non-stockyard space, which is basically the space you -- the [ IE ] space has gone up only 14%, around 11 million to around somewhere in the 13 million range, [ 12 ] million square feet. But your depreciation -- quarterly depreciation year-on-year has gone up around 43%, right? And it came in at around INR 40 crores in this quarter. So just want to understand what is causing this -- I understand the Ind AS charge. What I'm -- what I just wanted to clarify is, with the space growth, why is depreciation growth outpacing space growth materially, essentially, that's the question. But otherwise, I'm done at my end.
I'll let Yogesh probably answer that specifically. I think this is -- I think the way the leases work, I think we've said before is, how the -- within a quarter, timing of the leases come in. But, Pranay, probably since you've already said you'll reach out to Yogesh, I'll let him just take that up with you separately.
As that was the last question for today, I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us here today. I hope we've been able to answer all your questions adequately. If there are any other questions, please feel free to reach out to SGA, right, our Investor Relations partners or our leadership team, and I'm sure, we'll be happy to provide you more and adequate details around those queries.
Thank you once again for your customary interest in Mahindra Logistics. And I wish you all a safe day. Thank you.
Thank you. On behalf of Mahindra Logistics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.