Mahindra Logistics eyes quick commerce; expects slower H1 due to Ukraine crisis

Third-party logistics company, Mahindra Logistics Ltd plans to tap new growth segments like groceries, quick commerce, and last-mile delivery, which it believes will gain a lot of traction in the times to come even as the company expects a muted first half (April-September, FY23) owing to the impact of the geo-political crisis emanating from the Russia–Ukraine war.

The company, which posted a consolidated net profit of ₹37.07 crore in FY22, up 23% over ₹30 crore in the year-ago period, is of the view that the non-automotive segment and warehousing solutions will remain in momentum in the current financial year too even as it expects a slower start to the year due to Ukraine crisis, and a pick up across segments in the later part of the year.

Speaking on the new growth areas the company plans to tap Rampraveen Swaminathan, managing director and CEO of Mahindra Logistics, tells Fortune India, "We are witnessing growth in new categories of e-commerce like grocery delivery, quick commerce and last mile delivery. We are focussed on expanding into these areas."

According to Swaminathan, the company is working with several customers on quick commerce and grocery space which are largely inter-linked. "We are working in two broad spaces with our consumers. The first one being setting up of city-level fulfilment centres, where the material comes in from vendors and suppliers. The second one is setting up of dark stores and delivery architecture," Swaminathan adds.

In fact a declining trend in the e-commerce has led the company to strategise and tap opportunities in the quick commerce segment. In fact, a deceleration in the company's performance in the third quarter of 2021-22 was due to a lower-than-expected e-commerce volumes.

Explaining the downward trend in e-commerce, Swaminathan says that a lot of firms added capacity assuming that the pent up demand seen in the wake of the first lockdown of the pandemic will sustain. "But three things happened. First the pent up effect went away. Secondly, there was a shift to the physical channel as people wanted to move out. Thirdly, with the competition in the e-commerce space, the market share has spread across higher number of players," Swaminathan says, adding that the volumes of the clients were much softer compared with what the company had planned for, thereby hitting the profitability in the third quarter of 2021-22.

"One of the challenges in the Q3 was operating at Minimum Guaranteed Volume (MGV), which impacted our earnings in the quarter," says Swaminathan. For a logistics company to remain profitable, it has to have a volume much higher than the MGV.

The company however is hopeful that like last year, the non-automotive segment and warehousing solutions will remain in momentum in the current financial year too. That said the business activity may remain slow in the first half and may pick up pace in the second half of the fiscal.

"In the previous fiscal, the non automotive business grew 30 percent, warehousing solutions witnessed a 41 percent growth with revenues to the tune of Rs 1000 crore alone from it. Overall we hope to maintain the same momentum this year too. But we hope a slower start to the year. There is a lot of volatility is expected in the first half due to high fuel and commodity prices. We are looking at a moderate H1 but a strong H2," Swaminathan says, adding that secular uptick across sectors is expected in the second half with the auto sector supplies unfreezing and chip supply improving.

Mahindra logistics posted a revenue of ₹4,083 crore in FY22, up 25% compared with ₹3,264 crore in the preceding fiscal. In Q4, FY22, the company earned revenues to the tune of ₹1,073 crore as compared to ₹974 crore in the same quarter of the year-ago period. The company earned a profit after tax of ₹35 crore in the fiscal ending March 31 over ₹29 crore in FY21.