Mahindra Logistics Ltd
NSE:MAHLOG
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Mahindra Logistics Ltd
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Ladies and gentlemen, good day, and welcome to the Mahindra Logistics Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shogun Jain from SGA. Thank you, and over to you, sir.
Thank you, Aman. Good evening, everyone, and thank you for joining us on Mahindra Logistics Limited Q1 FY '24 earnings conference call. We have with us Mr. Rampraveen Swaminathan, MD and CEO, along with the senior management team. I hope everyone has had a chance to view the financial results and investor presentation posted on the company's website and stock exchanges. We will begin the call with opening remarks from Ram followed by a Q&A session. Before we begin, I'd like to point out that some of the statements made during today's call may be forward-looking. A disclaimer to that effect was included in the earnings presentation.I'd now like to invite Ram, MD and CEO of Mahindra Logistics Limited to make preliminary remarks.
Thank you, Shagun, and good evening, everyone. I trust you all have had a chance to view our presentation and financial results, which are available on the stock exchange and on our company's website. In the interest of leaving more time for questions and answers, I'm going to kind of keep my update short. I will provide a short update on the external environment and our end market performance, a few key business elements and events of the quarter, status of the ongoing integration of the Rivigo PTL acquisition. And finally, I'll conclude by discussing highlights of our financial performance and our focus areas for the remainder of the year. From a broad macro perspective, the economy of India has and continues to see a tremendous transformation in recent years. So the momentum continues to remain positive. As evidenced in the recent visit of the Honorable Prime Minister to the U.S., the centricity of our nations and economic and geopolitical force continues to grow. This growth, of course, will continue to drive the need for increased logistics. The drive for global competitiveness will not just require infrastructure but favorable policy and more integration across the supply chain.Over the last few years, our company has been motivated by a mission to offer integrated tailored logistics and mobility solutions, building a combination of technology, equipment process capabilities. We believe this customer-driven approach will help us achieve our objective of revenue of INR 10,000 crores in revenue and class-leading financial returns. During F'22-'23, we took several steps to accelerate our pace of growth and drive scale and synergy in this pursuit. Our acquisitions we made last year were aligned in this direction and a combination of scale and structural cost management augments our focus on growth and expansion of offerings.Let me give a quick update on the end markets which we cater to, the automotive sector, as always. At a broad level, the segment, especially PVs, both ICE and EVs remain robust, though some segments are showing signs of moderation and volume growth. Demand has remained mainly stable across all the segments, except for interior PV and 2-wheelers products, which are not showing any immediate signs of a significant rebound. Despite modest progress in just finished festive and marriage season, demand in the 2-wheeler segment still remains -- [indiscernible] remains quite subdued.There are some early indicators of possible headwinds in the case of demand slowdown in specific categories such as LCVs and tractors as a result of increasing inflation and interest rates, slightly weaker global macro is prompting new demand concerns for businesses with global exposure. The passenger vehicle wholesale sales rose by 7% year-on-year, driven by new product launches and easing supply chain issues, but it sequentially dropped quarter-on-quarter owing to price hikes, both [indiscernible] regulations and some weakness in the entry-level segment. We continue to expect growth in this segment from our business' perspective, but do expect to see some moderation in the second half across both auto and farm businesses.The consumer durable business, unseasonable rains across the country appear to have dragged on total RAC demand. However, some areas such as south and east have performed well. Our demand from north and west continues to be below forecast, the clients which we work in. That has resulted in higher-than-normal channel inventories. Weaker consumer emotions due to inflation have continued to affect demand, particularly for entry-level products. And it has been a challenging summer season for cooling products, especially. We've seen a strong April followed by some pretty strong weakness in me and some rebound in June. Now we do work with a series of clients in this segment, and we expect here that growth will be quite moderate for the rest of this year.The FMCG industry, the quarter has been -- is expected to be a better quarter. The stress in demand in semi-urban and rural sector appears to have bottomed out. There's some easing in inflationary pressures. Despite this, obviously, the skewness towards smaller pack sizes across the board. And the harbor season following the monsoon an important indicator, right, for consumption demand and determine the viability and expansion of current green shoots evident in semi-urban and rural markets. Urban markets remain resilient and continue to grow gradually. With a good traction in urban markets, a bottoming of rural softness and the broader base between to improve overall volumes are likely to be increasing from here.We have continued to see good traction in this segment, right, with an increased demand for integrated solutions, what we call integrated warehousing and distribution and several wins here. And so we expect growth both in account and with new account volumes. The e-commerce sector, which is a reasonable part of our demand base, right, long-term prospects of the e-com sector remain very positive, driven by an increased endows digital adoption and greater penetration across both categories and industries for digital platforms. However, the competitive intensity is likely to decrease in the short term with more players focusing across the board on B2C solutions, micro fulfillment and quick commerce across the board.Given demand moderation in the short term, there is a marked increase in capacity consolidation, which has impacted warehousing and solutions done by different 3PLs, including us. As we had mentioned last quarter, we have seen trading impact of this with the closure of multiple sites in our business across several of our customer accounts. In great measure, our [indiscernible] business acquisition has helped offset this drop in volume. However, we have seen an increase in white space where approximately 0.5 million square feet during this quarter due to site closures and most of those were in the middle quarter -- middle of the quarter. Our electric vehicle business based delivery services remain robust with continuing fleet additions across 19 cities we operate in. We have not expanded to 4-wheeler offering. And recently, we launched a 2-wheeler offering along with the recent peak of couple of marketplaces.Lastly, the mobility sector. In the mobility sector, the policy drive towards electric vehicles continues to gain traction with major fleet operators focusing on expanding their EV fleets and targeting probably around 40% to 50% of vehicles to be electric by the end of 2026. This is mirrored by an increased focus by policymakers and authorities such as airport authorities who are pushing towards a broader trend of electrification. And we do expect that this will continue over a period of time. The volume of aviation traffic in India has -- Indian airports has increased by [17%] in F'22 and '23. I mean this year, the aviation traffic volume is expected to grow by another 17%. That has a strong impact on our airport services business, which has been seeing a rebound on account of that.We have also seen a continued but marked improvement in return to office across the board. And this has helped our enterprise transformation businesses -- enterprise transport business as well, both through in account growth as well as the acquisition of new accounts. Collectively, during the quarter we just 39% year-on-year growth in the mobility sector business.If I have to sum it all up in terms of broader demand environment, I think the overall environment still remains broadly positive. For the quarter, we did see an uptick in order intake across our third-party logistics contract logistics business, which improved sequentially in terms of order intake despite the challenges in e-com. For the quarter, third-party --3PL contract logistics order intake was around INR 130 crores on an annualized contract value basis. Obviously, some of that is offset by churn in the e-commerce segment and a couple of other areas.The forwarding business is also gaining volume traction. Sequentially, within Q4 and Q1, we did see growth in volume despite the challenge of continued drop in prices. We have seen some key wins there across the board. We expanded our presence in integrated solutions for India's leading private telecom player combining both warehousing and value-added services. For a large personal care products company, during the quarter, we have won the integrated warehousing and distribution solution contract for the western region, which supplements the business, which we already do with them in the south with a similar solution format. For a leading global contract manufacturing company in India, we have been chosen to provide 50% of the cross-border logistics solutions.So overall, we do see demand is improving. We've had a challenge, obviously, in the first and the fourth quarter of last year with some slowdown in demand closures. But we do expect to see that picking over the rest of this year, and hopefully, the momentum will sustain.I'll talk about a couple of important things before I move on to the financial performance. Firstly, the integration of the Express acquisition from Rivigo. As we have mentioned before, this is a key quarter for the Express integration. We spent the fourth quarter of last year doing planning around the acquisition and we entered an integration phase towards the end of that quarter. And this quarter, the focus was on integrating both the networks. Through the quarter, I think we have seen our focus on transport cost reduction has been on plan and is moving ahead for our targets. And we have been able to demonstrate and drive synergy on the transportation side, both within the Express businesses as also with the rest of our other transportation businesses.During the quarter, we also invested significant efforts in consolidating the warehouse infrastructure across both networks and aligning the loads on single IT platform. As a result of the work around the transition, we did see some drop in the service levels across our network as we are doing this transition, and that drop in net service levels, this year reduction in volume across several of our customers. In addition, we also shut down some business accounts for strategic reasons on not assisting those accounts. A combination of these factors resulted in a volume drop approximately 25% to 30% on a quarter-on-quarter basis. What we have done is probably the transition intimate some of the changes in networks to our clients ahead of time. And now as the transition of operation issues are resolved, we are starting to see an uptick in that volume again. We expect to be that this will be recovered by the early part of H2, and we will back on a growth track at that time.Financial results obviously were impacted by the volume drop as well as the cost related to the integration of both the networks. We also saw a margin increase in transportation costs due to the network optimization, but these remain favorable to prior cost structures. And that obviously had a lot of trading impact on our financials compared to the fourth quarter of last year. On a quarter-on-quarter basis, last quarter, we did actually see accrue the deferred tax benefit, which we did not do in the first quarter of F'24. And on a pretax basis, the results are fairly comparable and slightly better between Q4 and Q1, despite the drop in volume.The other things that we want to briefly cover is our warehousing and solutions revenues. As some of you have seen in the presentation deck, we did report a drop in our warehousing and solution revenues on a year-on-year basis. And that drop is largely on account of 2 things. I think first, we did see some churn in the e-comm business as I mentioned. We won new accounts but the net impact of it was marginally down. We also did see an impact on a year-on-year basis of the shift in the business model we do with Bajaj Electric and that obviously had -- that change now contribute for a substantial part of that drop in revenues. We have obviously -- we expect that to come back and track over the next -- or through the middle of this quarter because of the new businesses we have won.On the positive side, I think you would probably see a significant improvement in margins in the warehousing business and solutions business, as we have really invested a lot more in finding cost improvements and I mean, optimization, productivity in the network. And those improvements are actually trailing down. And those have been a reasonably large part of the improvement in the financial performance of MLL on a standalone basis as well, right?We have seen obviously some increase in AS 116 costs, which you may also have noticed year-on-year, AS 116 costs, both in terms of the return -- the RTU cost as well as the interest costs have gone up. Those are trading, of course, increase in margin, which we have demand which we have seen. And those improvements -- those are largely on account of a change in mix as we have had smaller or less expensive warehouses being replaced by more expensive facilities, which also allow us to get better yield and better gross margin, right? And of course, if there are any questions on this, I'm sure I'll cover those in the Q&A.So moving on to the consolidated financial performance. Revenue for Q1 F'24 increased by 8% year-on-year, right? On an overall basis, supply chain, including our 3PL business is obviously contributed 94% of our revenue. The mobility business contributed to around 6%. Gross margin, on a fully consolidated basis, for Q1 of '24 was 10.5%, up 20 basis points on the same quarter last year. This was despite the impact of the MESPL acquisition. Excluding the impact of the MESPL acquisition, our gross margins for the quarter were at 11.5%. And EBITDA for the quarter stood at INR 72.8 crores, up from INR 68.8 crores in Q1 F '23, in some part, impact due to the consolidation benefits or effects of the Rivigo acquisition.Excluding the EBITDA loss of INR 18.5 crores, which is there on MESPL, EBITDA stood at INR 91.7 crores, up from a comparable INR 69 crores for the same quarter last year. PBT on a fully consolidated basis is down from INR 19 crores to INR 0.6 crores in Q1 F '24, and our PAT was down as we reported net loss -- consolidated loss of INR 0.5 crores for the quarter. Obviously, the impact of the businesses were very different. The consolidated results are impacted differently by different components of our portfolio, and therefore, let me spend a couple of minutes highlighting in the component performance.MLL revenue for Q1 F '24 was INR 1,051 crores as compared to INR 1,016 crores in Q1 F '23. That included -- in Q1 F '23, we did have the Express and the Mobility business consolidation inside MLL. Net of those eliminations, the business actually grew by around 7%. Our PAT for Q1 F '24 was INR 23 crores compared to INR 14 crores for corresponding quarter in Q1 F '23. It was impacted largely by operating results and to some extent, by other income increases.Our other income was up during the quarter for multiple sort of reasons, including these statements -- including some subleases, which are now accounted as financial income and a few other asset categories where we saw movements right there. Lots was up, revenue was -- for Q1 was at INR 77 crores, down compared to Q1 of last year, it was INR 109 crores. Our PAT for the quarter was INR 1.6 crores compared to INR 3.3 crores for the corresponding quarter last year. Most of the dip in profits was driven by volume. On a sequential basis, of course, we did show an improvement in revenue compared to the fourth quarter of last year.The Express business had Q1 FY '24 revenue of INR 84 crores. As a matter of detail, I would just highlight that this includes almost all the consolidation benefit of both the businesses. In the first quarter of the year, there were some business which did not fully transition, but I would say the large measure of it was transitioned. And this is where the 25% to 30% drop in volume is kind of really affected. At our PAT -- on EBITDA level losses for the quarter were INR 18.5 crores and our PAT level losses at least INR 29 crores in the Express business.The mobility business saw in Q1 had a revenue of INR 80 crores compared to -- and our PAT loss for the quarter has narrowed quite substantially from -- compared to a loss of INR 2.2 crores last year in Q1, it was at INR 1.8 crores in Q1 F '24. Losses were impacted by quarter by onetime charges for write-offs on account of one customer, which is GoAir, we do both with GoAir. And as a result of recent proceedings with GoAir, we have, as a matter of prudence decided to take provisions for the entire receivables which are owed -- which are due from them, and that has impacted our earnings. Excluding that, we would have been close to breakeven for the quarter, which is in line or slightly ahead of what we had expected or kind of given indications on earlier.Resort revenue for Q1 was at INR 31 crores compared to INR 29 crores in Q1 F '23, up by around 8%. The underlying volume growth was around 14%, and we did see a drop -- we did have price reductions given to clients, which obviously impacted our revenue as well. Our PAT loss for the quarter was at INR 60 lakhs compared to a loss of INR 1 crore for the same quarter last year, a 40% improvement compared to the previous quarter. Despite our kind of a tough pricing environment, a huge focus on operational areas and the underlying kind of volume growth actually helped us narrow losses on a year-on-year basis. In the upcoming quarters, we have a second investment tranche, which is due to be made, which when made, will make MLL the majority shareholder of Whizzard -- of ZipZap Logistics is which we call.2x2 Logistics is a business, which obviously has had a consolidated its turnaround compared to last year when we had significant losses in the business. Our fleet completely up and running. We have completed the modifications of the vehicles and upfitted them both -- retrofitted them also for additional features such as dome carrier capability and so on. And now as a [indiscernible] come back to full operations, I think the business has made a profit of around INR 20 lakhs in the quarter compared to a loss of INR 2 crores in the same quarter -- for the corresponding quarter last year. We continue to see headroom in this business. There is still upside in terms of vehicle utilization and in terms of miles or kilometers of vehicles are running. And we expect to consolidate and continue to improve our performance through the rest of this year.So overall, I think it's been a mix -- it's obviously been a mixed bag. In our core 3PL contract logistics business, our mobility business, the 2x2 investment and ZipZap, all heading in a consolidated -- in a structural -- in the right direction and all demonstrating good improvement, some of them over multiple quarters, trailing quarters. The lot business, the freight forwarding business is in a challenging environment as prices to remain under pressure. But I think we've been able to offset that with volume growth and growth. And we continue to be able to stack margins and hold our margins through solution design and by kind of strong account focus and segment diversification.The MESPL business is in a transition phase. And as we think we have done in some of the other smaller and other acquisitions, we remain confident about the scale up, right, and drive the cost reductions in the business. Overall, I think we'll continue our strategic focus on development and scale and providing a compelling value proposition to our clients as we try to deliver integrated solutions.We do deeply believe that productivity across the supply chain has a high correlation to how we integrate the supply chain using technology. And we remain focused on cost management, continuous improvement as you kind of navigate through some of these changes. And we continue to invest in other areas, especially on diversity inclusion, expanding the talent base of the company, right? And those are areas which remain a key part of our focus. Broadly, I think those capture the highlights of the quarter, which just went by.And with that, I'll open it up for questions-and-answers. We'll open the floor for Q&A.
[Operator Instructions] The first question is from the line of Sumit Kishore from Axis Capital.
I have 2 questions. The first one is you mentioned in B2B Express, there has been a volume drop of 20% to 25% quarter-on-quarter. If you could give us some sense on how the volume growth trajectory in B2B expects -- needs to pan out in the remainder of fiscal and how does network utilization need to improve for you to secure your target of becoming EBITDA positive here in H2 of the financial year? That's the first question. Secondly, on contract logistics, the revenue growth of 6% has decelerated. And could you give us a sense of how much potential is there to increase revenue and contract logistics by increasing share of business from existing accounts? So what is the addressable opportunity by increasing business from existing accounts? And how has business development really panned out a new client addition panned out in contract logistics?
Sure. So look, I'll take the first one -- probably first anyways. So I think as I said, and you may remember, I think what we had said from where from the baseline effect of the share of the volume growth the business has had and maybe at the time of the acquisition, collectively, both the businesses has around 420,000 to 450,000 tonnes of volume, right? And we have -- and we need another 10% volume growth to be able to get 10% to 15% volume to get an EBITDA positive level, assuming that all the cost reduction actually would -- and would fall through. Obviously, the cost reduction is a function of 2 things. It's a function of operating leverage and the velocity of being able to get the volumes due to the cost optimization. Where we are right now, obviously, in the fourth quarter, we did see a 20%, 25% of -- actually 25% to 30% drop in volumes. As I mentioned earlier, we have not seen any customer really churn out of the system. We've actually -- all our customers have been held are still working with us. And many of them are working with us on some lanes and not all the lanes because we -- as we made the network changes, we intimated to them and worked with them to clarify to them that there will be stops in [NSL] in specific areas definitely. And so, customers did pull some -- drops us of those lanes, but that's something which we are confident to start coming back because in July, we're already seeing that happening, right?So we should see that progression up. So the first milestone, obviously, so much is -- so try to wrap it together, we need to -- we are probably around 35% to 40% off on volume, 30%, 35% off on volume to be close to the EBITDA level we would be at that obviously assumes that we can also execute the cost reduction work along with that volume, right? And that's why I said we expect that in the early part of H2, we should be able to ship that volume. Obviously, clients will obviously take the volume down in a certain way and obviously add it back in a phased way as well. But we do expect that should really is back to that level by the early part of H2. So roughly a quarter is going to go take a bit of a quarter of an impact compared to where we thought we would be a bit earlier. And it could get better and could accelerate the volume faster, but it's something which we want to be sure the networks redesign properly the way we want it to be from a long-term perspective, right?
So a quarter's impact would be basically Q3 now instead of -- so in H2, we should think about more like September to December quarter?
No, I think -- yes, I think we should say it's still September-December quarter, somewhere in the middle of that. Obviously it's festive season, so we expect volumes to be particularly beneficial for us during that period. But the network configuration has to get done. And obviously, we have to get all the cost base is aligned, right? And so, there's a bunch of work there, but we are pretty confident about we're reasonably sure because volume might start coming back in July. And that I think is actually -- the proof of the pudding is meeting it. So obviously, we are starting to see volume come back. So as contract logistics demand is concerned, I think you're right. I mean, we've seen across the board, the automotive segment, overall, a 7%-ish kind of growth in contract logistics, 6% to 7%. And automotive has -- automotive and manufacturing have led that growth by around 13% to 14% year-on-year. That's all automotive, including non-M&M and M&M businesses, right? And that's been a positive -- that's been the positive trend. Obviously, we have seen the impact of churn on the e-com side and a year-on-year basis, obviously, sooner because of the Bajaj account as well, right, the fall -- drop and fall in that.As I mentioned earlier, I think last quarter, we had an order intake of approximately INR 100 crores in the 3PL contract logistics business in the previous quarter just -- so that's the last quarter, Q4. In Q1, we've had an order intake of INR 130 crores to INR 140 crores. Now given construction windows are 3 months to 6 months, right, we should expect -- so that's the window within which it will start falling into our revenues, right? And to put that in context, I think we have been targeting a INR 400 crores to INR 500 crores kind of annualized order intake growth given the longer-term aspirations we have in terms of revenue and results earnings. So this quarter -- this year, I mean, we have started off well in terms of order intake, but it does take 3 to 6 months to actually deploy these solutions.And that's been the trailing impact from a revenue acceleration perspective. So you should start -- we should start seeing this again in the second half -- in the middle of this quarter, starting to get rebalanced in terms of the nonautomotive growth starting to come back strongly, right? We have won, as I said, several accounts for the large telecom company. We are a key part of their 5G program in terms of warehousing and are value-added services and distribution for that. We've also won several other larger accounts for integrated warehousing and distribution. So we expect those to start [wiggling in] between the second half of this quarter and the earlier half -- early part of next quarter because those build-outs are all in line towards the festive season. So that's I think where we stand and hopefully, that answered your question.
[Operator Instructions] The next question is from the line of Alok Deora from Motilal Oswal.
I've just had one question around Rivigo. So we have seen that, again, the losses are quite significant there. I mean, if we want to look at it. So we are operating at around 20% EBITDA margin or EBITDA loss, 22% EBITDA margin loss. So how confident are we in kind of being like a breakeven by third quarter, which you were just mentioning, considering that the feelers we are getting is that there is some slowdown in the Express Logistics in the first quarter and little bit in the second quarter as well. So just some color on that if you could highlight this particular business.
Sure. Look, I think, first of all, let me answer your question on the more direct part of what gives us confidence. And then I talk a little bit more about, I think, more strategic factors here. So I think, as I said, when we set up the transaction and we talk to all, update all of you that time as well. And as I mentioned, just on to Sumit's question, we did expect that synergies plus up 15% growth would get us to a positive EBITDA window. And from there on would actually be able to drive broader growth in the business, right? And that's how kind of -- that was the plan, right? Now what we've seen is, obviously, in this quarter because we have been doing network transitions, which are there, we've actually seen the impact of those network transitions playing out. And what that means, obviously, is we have to reconsider and rebalance many lanes as we put in shutdown facilities, consolidated facilities, revisit tech platform. And obviously, we have customers operating on 2 separate tech platforms with 2 different physical architectures, right? One which operated more -- the MLL network operated more as a hybrid mesh, whereas the Express, the MESPL network as a pure hub-and-spoke. And as you transition customers across those accounts, we obviously were going to have things -- we have really of the entire network.And that physical work obviously has been disruptive and therefore, has had an impact on volume, right? And so, the first step, I think, in terms of getting -- so our hypothesis still remains the same that with the synergies and with that volume base, we should be able to we are confirming breakeven, right? The synergies in turn have 3 parts. It has firstly the transportation cost reduction. As I mentioned in the opening comments, those are generally on track. And we feel those are generally on track even at slightly lower volume base. The second one is the consolidation of facilities and infrastructure, that's also on track.We have done the consolidation of most of the facilities. There have been some onetime costs related to that. There are some short-term facilities that we have to add as well, but those are directionally on play, right? The challenge we have -- the challenge we've had for the large part is just the sheer level of volume drop and the impact of the volume drop because volume dropped by another 30%, 35%. So that's a big one, which we do need to kind of claw back on. What gives us confidence on able to claw back on because we're not actually looking at a whole bunch of new business.We are actually working with the large part in terms of business, which is already there, right, which is already there. And it's a business which we had accounts we already have, and as I mentioned earlier on, none of the accounts have kind of gone -- have gone -- I mean, we don't have -- we had probably less than 5% full churn on any of the accounts. So all accounts we are working with the lanes still continue to operate with them. So it's not something which we believe is a big stretch. Many of them are also accounts of our existing 3PL contract logistics businesses. So that's, I think, the summary more direct answer to how we will get back, right?Now what -- the couple of other things that you want to kind of highlight here and just I -- we share the way we see it, as management. And the first thing is that if you look at the business, the business actually had -- continues to have positive contribution margins, right? This is an operating leverage based business, and it's volume driven, as you all know very well, right? And we don't have negative unit costs on the business.Contribution margins are in the 15% to 17% range. We obviously think they have upside more, right, as we can optimize some of these costs and transportation but that clearly is the spread, right? So as we gain volume and get productivity to the existing facilities, we should see the multiplier effect coming in, right? And that's -- so that's one thing I do want to highlight and just reaffirm that.The second thing I think is that when we did the transaction, I think we also highlighted, we believe that we got the transaction at fair price, right? And what I mean by that is that the transaction, obviously, we indexed in the continuing cost of transforming the network, right, in our acquisition price. And even though the multiple which we paid was probably lower than some multiples of some businesses and the industry trade up, we felt that, that is -- some part of it obviously was the investment we had to make, right? So the price of the transaction did factor in what we expected and we did say that it'll take us a year roughly to make this business EBITDA positive, right?So trailing effect has been a little bit longer in the first 2 quarters than probably what we expected, right? Because now we are seeing the actual impact of it, but as you have shown with the Meru business or we have shown in some of the other businesses that we do believe we have the ability to make scale profitable, right? And therefore, that's going to be the journey we'll be on the MESPL as well. But I didn't want to give this first. I wanted to first here to do about the numbers first and what we're doing there.
Sure. No, the only point was that we are down 30%-35% I volume and to breakeven in the kind of growth on the initial volumes. So [indiscernible] back the entire volume in 1 or 2 quarters could be a big challenge in kind of a slowing Express market growth? I just wanted --
It's a fair point, Alok. And I think -- I mean there's obviously this right in everything. But what I would say first, I mean, we are down 25% to 30% on the baseline volume. And I think that's not an end of quarter view, right? That's a full quarter view. So obviously, we'll improve into the quarter. As I said, in July as well, we have been showing improving volumes on all our accounts. So the trajectory is there. The trajectory has to hold clearly, we able to execute well. And that's something which I take on board completely as very valid feedback and obviously, and that's something we're working on. I can't really say it's all done or it's going to completely happen. But obviously, I think as early signs are in this quarter, we seem to be on track. And as I mentioned, it will be early part of H2. It will not be in Q2. It will be the early -- somewhere in the middle of H2 as I just commented to Sumit, somewhere in the October to December window, when we'll actually be able to get to that point.
Just last question. In MLL Express, there is a taxation impact, I think, around it's --
[indiscernible]
Yes, yes. What is that related to because --
So last quarter, we took in the fourth quarter because of the first quarter of the acquisition -- post-acquisition, we need to get deferred tax benefit on the business. And we had obviously taken up to the first quarter with the clear intention that as the business moves into an integration environment, we will no longer take the defer tax benefit. And therefore, in this quarter, we actually did not take the deferred tax benefit. And if you actually look at it, at a PBT level, despite the impact of the -- at a PBT level, we actually did show some margin improvement despite the lower volume compared to Q4.
The next question is from the line of Amit Dixit from ICICI Securities.
I have a couple of questions. The first one is around essentially a little bit confused with the industry outlook that you gave in your opening remarks where certain segments of automotive, you see a little bit of weakness. Demand in north and west remains subdued. E-commerce also competitive intensity short term is expected to result in demand moderation. Now with all these headwinds, where do we expect really volumes coming from? Or what is the kind of industry growth that you are looking in your key segments, not maybe in immediate term, but for the better part of FY '24? That is the first question.
Sure. A great question. I'll come back and reframe that my comment, just to help clarify that.
The second question is essentially, if you could just quantify this impact of GoAir, the onetime loss that we took, more of a bookkeeping question.
Absolutely. Good question. I'll take a bookkeeping one first [indiscernible]. So I think -- so we had, I think, pending receivables of around INR 2.5 crores -- INR 2 crores to INR 2.5 crores. We can send you a more exact number. If we reach out to the Investor Relations team. But somewhere around INR 2 crores, INR 2.5 crores was the receivables due from GoAir.This is for -- largely, we are providing -- these are for services which are providing largely for their crew and their staff. And obviously, it had us on DSO or receivables for several months, right? And therefore, what we have done is on a prudent basis is to actually obviously take provisions against those, right? Because while we are working with the arbitration the process in terms of finding resolution towards it, we have taken prudent action on that. And that's why I mentioned earlier that net of that, we actually were pretty much close to breakeven at a PBT level in the business.The second thing, which I think was that -- in terms of the demand scenarios, I think -- let me just contextualize this little bit. So for us, in the automotive industry, firstly, we are -- our larger exposure in the auto and farming businesses is to passenger vehicles and commercial vehicles. We don't actually have -- from a downside perspective, Amit, we don't have a large amount of volumes in the 2-wheeler business, we have specific accounts, which we work with, especially on the electric vehicle side and some accounts on the pipe side. But our larger exposures or larger relationships are in high-end passenger vehicles, both Mahindra and non-Mahindra and commercial vehicles.And those segments are showing some moderation but continue to be robust. So one -- so I just want to clarify that part of this volume growth we expect to happen to existing accounts is because where the accounts we work with are actually in fairly robust shape, right? While there might be slightly puts and takes across other parts of the segment we work with, which is the Mahindra, Hyundai, BMW, BMW, Mercedes-Benz, right, all of those, Volvo, I think most of those accounts are actually still seeing a fair amount of robustness -- and Ashok Leyland so we are still seeing robustness there, both passenger vehicles, trucks, HCVs and buses. So those are actually, I think, why we are optimistic about our volume growth despite some of the headwinds I mentioned in my earlier comments. E-commerce is seeing some softness, and that's a cyclical thing.We had some strong growth in the market over the last 3 years. We obviously will have a correction in the markets. I think for us what is important, what's actually growing is right now, discrete manufacturing, which is general manufacturing is seeing some strong growth and the consumer, the FMCG business, especially. So as I mentioned, consumer durables is kind of flattish, right? Auto is still good for us, [indiscernible] accounts, we have a seen volume. E-commerce is kind of this kind of yellow to red. It is obviously under pressure. But the consumer FMCG and FMCG and general manufacturing segments are up quite a bit. They're not all because of just -- not because existing accounts alone, they're also because of the new accounts we have been winning. I hope that clarifies kind of our view.But I think what -- if you go back to the fourth quarter where I gave comments on outlook for the full year, I would say that this year, overall, we expect to have slightly slower growth, right? And I think I still reaffirm that view that we will see, the comments we made back in April, we still believe largely hold true, it will be a year of slightly slower growth on a blended basis, from a revenue perspective.
Yes. Okay. Just one follow-up on that GoAir thing. So this entire INR 2.5 crores you have taken provisional or there is something --
No we have taken all of it. There will be no objection, no future impact -- no negative future impact.
The next question is from the line of Krupashankar from [indiscernible] Spark.
I had a question on the warehousing piece of business. So while you've not provided the space entirely manages roughly about 19 million, you did highlight that there was about 500 lakh square feet reduction. I mean, how do you see the warehousing space addition going ahead or perhaps the warehousing piece of business this year? Because I do see that the overall margin profile of the supply chain business, the 3PL contract logistics business has been improving. And I just wanted to check if there is further avenue of improvement in that particular sector.
So I think -- let me just to frame that, I think improvement in supply chain business has been a couple of things I think we have seen where we have -- just our warehousing businesses, we have made a lot of focus on this productivity improvement there, and there's been some yield obviously coming from that. Some bad accounts or poor yield accounts have obviously been shut down, that's helped as well. And the third one is where we have the integrated solutions. We have been doing a lot more of cost extraction between the warehousing and the transportation basis, right? And so that's been the 3 big levers on which we have been working on. And I think that will -- that focus will remain, Krupa, I don't thing that changes. Now how to exactly quantify that, I think it's hard to put a specific number around it, right? But it's something which has been a focus for us, and it's finally starting to bleed through our numbers. I think this quarter will probably be more stable. But you saw we did some improvement in Q4 of last year, and we've kind of had the improvement now. And the contract logistics business actually has been improving roughly for the last 3 or 4 quarters, quarter-on-quarter. It's not just one quarter's result.So now in terms of warehousing business itself, I think we are at around 19 million square feet of managed space, that includes 1 million square feet roughly, which has not turned into directly to our revenue line. That's roughly 1.3 million square feet is what our Express business is use -- and that's the business -- that's the volume which actually gets showed up in the express revenues. It doesn't actually show up against the 3PL revenues Krupa.And I think we are -- as I mentioned in the press release, we have mentioned we are on track for expansion. We are not -- we believe that there always will be some white space, a little bit of white space will be in the network because we are reconfiguring customers adding volume and actually it's good to have short-cycle capacity, right? India is a short cycle market for the large part, and therefore, it's a good team to have some of the short-cycle capacity. So perhaps the important is to get a yes right on the square feet, which we are selling, right, even with the level of white space.And so, I'm not particularly worried about the 0.5 million square foot of white space, which is there. I mean we are working on contracting down the right yields, and that focus will be there. And the addition of new facilities are all on track. I think we mentioned this in the press release. We have a 1 lakh square feet expansion in Nasik, which is on track for Q3 of this year. We have 2 large facilities coming up in Guwahati, which is the largest in Assam, which is the largest kind of facility in the Northeast.We have an expansion, a new multiclient coming up in Calcutta, one coming up in Lucknow, if I'm not wrong. And all of those -- and then, of course, we announced a Chakan facility of 1 million square feet, of which half of it will come by the end of this fiscal year. And all of them are on track. There is no delay in any of them. We plan to take possession all of those on schedule, and we have a pipeline for all of them. Some of that is basically reconfiguring our existing customers into those accounts and some of its new clients and new operations.
Got it. So my second question is that I did note that in the presentation, you have stated that the -- you are targeting 18% ROE by FY '26. Now looking at the growth trajectory, given that this year is going to be relatively slower, I think with respect to overall growth. So what sort of a revenue CAGR are you targeting perhaps over the next 2 years? Because why -- and I think this is because you've seen that the worst is more or less baked in. And from here on, you perhaps starting in from FY '25, you may see that the growth trajectory can be quite strong. So what sort of a revenue growth target are you expecting over the next 2, 3 years?
I think we're looking at -- I mean, so that's in guidance [indiscernible], right? But I think as a said this earlier that we expect to grow the 3PL business at mid-teens, right? As you know, there are 2 big plays in our portfolio. The first one is getting the 3PL business operating at that INR 6,500 crore-ish level and actually had the right use in earnings levels. We've built the scale now last year, as I mentioned, at the end of Q4. We built we feel we have built a point of scale to drive optimization, right? And now we are looking at the mid-teen kind of growth every year, Krupa, we have fairly good confidence that we hold, right? There will be a year when this [indiscernible] a bit slower like this year, but it will bounce back. I mean we've had -- when e-commerce growing, it's growing at 30%, 40%, it's not always going at 7%, 8%, right? So I think it's an issue of how networks getting built out. But that's one part.The second part actually is growing the network services businesses rapidly. And the first step in obviously to get the cost structures and earnings to at the right point of another point because then they actually are scalable. So if you look at our network businesses, I think we have -- I think the large -- the forwarding business is from a margin profile and returns profile, this has to be scaled up now. The last -- delivery business, we put a lot of effort last year and this year to get the margins up, because if you remember Krupa, I said that we don't think this will be a 14%, 15% margin business for the medium term 8% or 9%, and we had to manage our cost structures to be able to get positive deals there, but we're getting close to that point now, right? And it's a clearly differentiated mode a lot of focus on electrification.The MESPL business is the one which we really have to get the margin profile of it right. Once we get that right, we can scale it up, right? So that's why revenue is key. And then if we are able to get the right margin profile unless you are -- you have very unfavorable macros like we are seeing in forwarding now, where prices have gone to significant correction. I do believe that the growth is something which you can really demonstrate, even the forwarding business, you go back 3 years, the CAGR is around 25% despite the price corrections, right?So it's something which is about our ability to sustain that growth and we still remain committed to that. I think obviously, will it happen exactly by the window, we can have set as an aspiration. It's not -- it may or may not happen, right? But then because the number is actually completely possible, then it wouldn't be an aspiration. It's a chicken and egg thing rather go long on it. And so we are still -- as we stand even continue doing focused on time will tie with that result to that point.
The next question is from the line of Jainam Shah from Equirus Securities Private Limited.
Sir my question is related to just a bookkeeping point. So can you please bifurcate the SCM revenue between Mahindra and non-Mahindra businesses?
Yes, the Mahindra business is revenue on 53% of the SCM revenue I think 51% overall. 51% overall is accurate -- so I feel 51% overall so we index it, so slightly higher obviously on SCM because mobility was 6%.
The next question is from the line of Saras from Haitong.
So my question is mainly on the mobility business. So can you give us some guidance of how it's going to pan out for the rest of the year? What kind of improvement are we seeing in the reversal of work-from-home trends? And like you had mentioned about the airport business doing well. So if you can give some numbers or some directionally growth for FY '24?
Sure. I think I think we -- I think from an immediate perspective where I think the airport business, the growth there is driven really by 2 factors: One, obviously, is our in-airport growth, right, and the second one is around expanding to universities, right? For growth in our airport operations, I think we are revising our electric vehicle fleet right now because we have to augment it went drive substantial growth there. But broadly, I think the platform revenue level, as you know, the Meru business has platform accounting revenue, which are different because of the aggregator model we use an accounting treatment associated with that. But broadly, I think as in the platform level, we do expect revenue growth to be 15%, 17% in that range. That's a range it was in the first quarter as well. In the first quarter, we obviously saw a substantial amount of growth in the enterprise transportation side. And that's come from 2 things; one is return to work increasing across some of our clients and the second one is the addition of declines. I think in all permits, I think if I split it up, I think even as we speak now, the incremental impact of return to office is actually lesser than new trend addition we had, right? And one of the few things which I mentioned in the past is they're obviously doing core a lot of people in this industry actually on the supplies side actually kind of basically exited the industry because the volumes fell off so much.And so, as volumes are coming back now, we are seeing several other countries and at other mobility companies shut down operations, and that's giving obviously us some headroom in terms of going and acquiring those accounts. So in Q1, I think the big impact actually bigger impact was probably split half year slightly in favor of actually new accounts coming in compared to the just pure impact of return to office. And that should obviously accelerate a little bit, right? So from a full year perspective, I expect -- I think what we had given as in directionally is that we expect that this year, the mobility business will become profitable again on a fully consolidated basis.And as a turnaround, we kind of said we will do the Meru business we acquired was losing INR 22 crores -- around INR 19.5 crores at a PAT level in F '21-'22. So 2021, and we said that we will actually improve it within 48 -- in 2 years and make the consolidated business profitable. And we expect fully to be on track for that. I won't give specific guidance at us on how much of profitability but despite what we saw in Q1, we expect on a full year basis the mobility business will turn around and become profitable.
The next question is from the line of Ankita Shah from Elara Capital.
Sir, you mentioned on the B2B Express business there is a 25%-30% decline in volume and we're looking to turnaround by second half of the year. So any benchmark volume number where you think this is required to breakeven the segment at what level of volume?
So Ankita, we have to be, as I said earlier on in my earlier comments, we had around 4 lakh tonnes, right, on a consolidated basis, and we need it to be around 10% above that to be on a full EBITDA base -- breakeven basis, including synergy. So we are down around 25% from where we were. So if we do the math we need around 30,000, 35,000 tonnes of volume, right, probably on 35,000 tonnes of volume and then the synergies to play out, right? So there is obviously a lot of work going on around that and through the second -- through the first -- somewhere in the middle of Q3, we expect to be able to get there. Early signs on volume growth are positive. I think Alok had asked a question about our confidence in those numbers, We said I think July numbers are ticking up in the right direction and therefore, we'll have to consolidate [indiscernible]. That's the plan.
Got it. Got it. And on the 3PL contract logistics side, you mentioned about M&M, non-M&M mix but about the sector mix, given that there has been a lot of mixed bag in terms of the sector exposure and some sectors doing well and not doing well for us. So for contract logistics business, what is the sector mix right now?
It's not changed much. I mean I think broadly, it's -- I wouldn't say it's -- I think automotive for us, the way we report our business, automotive farm, which is largely the M&M business is on 50%, 51%. The non -- the consumer and manufacturing business, as we call it, which includes FMCG durables, discrete manufacturing and some of the auto components and non-M&M auto volumes, that's around 35% and the e-commerce business probably is on the 15% range. And that moves quarter-on-quarter base like in the December -- in Q3, obviously, the share of e-commerce will increase because the festival will drive some of that. So it's quarter-on-quarter and month-on-month changes, but that's kind of a bellwether number, given kind of just where the structure is being changed now.
Okay. Yes. And lastly, I don't know if you've already answered this, I got dropped off in between. The higher tax rate is on account of --
Effective tax rate -- and I would request you just said that's a note to Investor Relations. But I think the effective tax rate for the quarter was 26%. That was pretty much in line with last year was 25.8%.
Okay I'll take out -- because the number was very high, the tax incidence overall --
No I think -- I understand if you look at deck, I think, Ankita, you'll see that a standalone basis, if you compare last year, MLL profits were around INR 19 crores, and the tax rate was around 25.8%. And this year, the MLL tax -- PAT PBT is INR 31 crores and the tax rate is around 26%. That is the largest weightage in the overall tax profile. But please do send us a note on Ankita, we will send you a --
Ladies and gentlemen, that would be our last question for today. I now hand the conference back to Mr. Rampraveen Swaminathan for closing comments. Thank you, and over to you, sir.
Thank you, everyone. I hope we've been able to answer all your questions satisfactorily. However, if you do need for any further clarifications or you want to know more, but the company pleased to contact our SG or our Investor Relations advisers. Thank you once again for taking the time to join us on the call, and wish you all a great week ahead. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of Mahindra Logistics Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.