Mahindra Logistics Limited (MAHLOG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mahindra Logistics Limited Q3 FY '20 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. Good evening, everyone, and thank you for joining us on the Mahindra Logistics Q3 FY '20 Earnings Conference Call. We have with us Mr. Rampraveen Swaminathan, MD and CEO; and Mr. Yogesh Patel, CFO of the company. I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on company's website and stock exchanges. 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 would 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 would now like to invite Ram, MD and CEO of Mahindra Logistics Limited to give his opening remarks.

Thank you, Shogun. Good evening, everyone. At the onset, let me just, let you all know that I have a bad cold, so I request you all to bear with me as I go through my comments. I want to focus my comments on 5 key areas. An industry update, our strategy and its execution, how we see end sectors and markets play out, details of our financial performance for the quarter and year-to-date and some operational and business highlights. The logistics sector continues to be an important area for the government. High logistics cost impacts competitiveness of domestic goods, and the government is constantly focused on bringing down the overall logistics spend. Developing world-class logistics infrastructure, introducing the overall logistics spend has been a key priority for the current government. Building dedicated road infrastructure, the dedicated freight corridor initiative, inland water transportation, Sagarmala, et cetera, a few initiatives, which are under various stages of implementation. Creating world-class warehousing infrastructure is also gaining traction across the country. At a macro level, we see 4 emerging industry trends. The first one is an increased focus on multimodal networks and systems, which we think will gain traction, especially with the new logistics policy. We see a strong growth in demand for warehousing based services, especially higher grade warehousing based services as we see a traction in terms of post-GST consolidation by different companies. We see an emergence of omnichannel distribution networks, and lastly, an increase in multi-category competitors. In the budget announcement last week, there were 2 key developments, which I think bear calling out. Firstly, the Finance Minister allows a significant investment in transport infrastructure. This has a significant positive impact for our industry on a long-term basis. Secondly, she reaffirmed the national logistics policy will be released soon. Several key policy areas will be enabled under the new policy. We are hopeful that under the aegis of this policy, there will also be measures to design sector-focused labor policies, common standards and related initiatives. Moving on to our business, let me first begin by just recapping our strategy and focus areas for the group for the business. We continued to stick to our 3 broad based principles for the growth of business. The first one is growing our non-M&M business, both in auto and non-auto verticals. Our focus here will be on growing our value-added services, like warehousing, in-factory logistics, and line feeding as well as expanding our secondary distribution services to this market. We will continue to remain asset-light and enhance our network operations through business partners to bring in more efficiencies, scalability and flexibility. Lastly, we would like to continue to invest in technological upgradation, which we feel is a key differentiator for the services which we provide and will help us gain business and operational efficiencies. Let me give a quick recap on overview of how our end markets have been performing and how we look at them in the near term. Let's begin with auto. FY '20 is likely to close with record -- the decline in automotive sales growth across all the major segments, passenger vehicle, commercial vehicles. The recent pickup in retail growth of PVs and 2-wheelers during this -- the quarter we just went by, points to some demand recovering end markets. However, with the whole push towards BS-VI in April '20, we do not expect a V-shaped recovery. This will be, in our estimate, a slow recovery. The passenger vehicle segment has started showing some positive outlook. But it's still early to call out a definite trend. The commercial vehicle segment warrants a more cautious view due to a persistent supply overhang from the sharp rise in system capacity, still regulatory debt cost burden and the risk of freight movement shifting to rail as a dedicated freight corridors are commissioned in FY '21. If we move to the e-commerce markets. Omnichannel and e-commerce industry is gaining traction over the -- and will continue to do so over the next few years as there's an effort to reach towns beyond the current fiscal presence and on improving network for last-mile connectivity and ensuring that these companies expand their pin code coverage. The growth of digital technology has steered the adoption rate of e-commerce logistics in a number of applications. The market growth is primarily driven by factors such as cross-border e-commerce activities and upsurge in Internet penetration, and the growth of this market will intensify and drive consumption across various regions. As e-commerce continues to rise, it's likely that companies will need to continuously adjust their business models to accommodate the fast, free and convenient delivery services the consumers demand. We have been a preferred partner for large e-commerce companies operating in India and the rising demand from the e-commerce industry, we are optimistic of growing this vertical at a faster pace by adding new customers and expanding our share with existing customers. Consumer and pharma. The growth in the consumer FMCG industry has shown some slowdown this year. However, what we see is the companies continue to drive towards consolidating their supply chains post GST. This was a trend, which many of us in the industry had forecasted, but now seems to be gaining real traction. The consolidation drives opportunities for us to provide fulfillment solutions, leveraging our capabilities in warehousing, secondary transportation and technology integration. Various markets within this space, such as FMCG, durables, have different supply chains, and we will see the continued emergence of omnichannel distribution and increased focus on service lines. Moving on to our performance for the quarter and the 9 months ended December 31, 2019. Revenues decreased from INR 981 crores to INR 900 crores, down by 7.5% year-on-year for Q3 FY '20. For the 9 months ended December 31, 2019, revenue stood at INR 2,659 crores. Revenues from SCM contributed 90% and from PTS contributed 10% for the 9-month period. Our gross margin adjusted for Ind AS 116 for Q3 FY '20 stood at 10.3% as compared to 7.9% in the corresponding quarter last year, an increase of 241 basis points. Reported gross margins for the 9-month period stood at 10.1%. Reported EBITDA for the quarter stood at INR 44 crores, and for the 9-month period ended December 2019 stood at INR 131 crores with an EBITDA margin of 4.9% adjusted for Ind AS 116. EBITDA margins on a pre-Ind AS 116 basis are at 3.5% for the 9-month period. PBT is down by 30.7% from INR 98 crores in 9 months FY '19 to INR 68 crores for 9 months FY '20. And PAT was down by 27.8% to INR 45 crores for 9 months FY '20. PAT margins for 9 months FY '20 stood at 1.7%. For Q3 FY '20, PAT was at INR 15.5 crores, down 19.7% year-on-year. However, PAT did grow sequentially quarter-on-quarter by 39%. We have had a negative impact on profits on account of transition to Ind AS 116 this year. For Q3 FY '20, if we negate the impact of AS 116 -- the impact of AS 116 of INR 5 crores and ESOP and RSU charge of INR 10.9 crores. Our operating PBT for the 9-month FY '20 period will be INR 83.7 crores compared to INR 99.2 crores for the corresponding period, down by 15.6%. The Mahindra Group remains a strong anchor customer for us. For the 9-month FY '20 period, revenue from the Mahindra Group was at 51.5% of our total revenue compared to 56.5% of our total revenue for 9 months FY '19. Let me now share the segmental breakup of revenues for 9 months FY '20. Revenues from the supply chain segment reduced from INR 2,549 crores to INR 2,373 crores. The enterprise mobility of PTS segment revenue stood at INR 286 crores for the 9-month FY '20 period. Our SCM revenue was impacted largely due to the continued slowdown, which is witnessed in the auto industry, which is still our largest and dominant vertical in the supply chain management business. Our revenue from the Mahindra Group decreased to INR 1,558 crores in 9 months FY'19 to INR 1,336 in 9 months FY '20, driven by the slowdown in auto and farm industry. Our non-M&M SCM business grew from INR 991 crores in 9 months FY '19 to INR 1,037 crores in 9 months FY '20. As we have mentioned earlier, this was due to a strong increase in our e-commerce, consumer and pharma verticals, which helped offset some of the slowdown in the auto industry. On e-commerce, consumer and pharma verticals, the group -- the verticals sustained a growth rate of over 35% year-on-year for the quarter, which has just been completed. Growth in e-commerce and consumer segments were due to deeper penetration of existing customers and providing them more integrated services under the MLL roof. Our warehousing value-added services for the non-M&M SCM business which is a core focus and strategic area has grown from INR 256 crores in 9 months FY '19 to INR 331 crores in 9 months FY '20, registering a growth of 29.2% year-on-year. Share of warehousing and value-added services in the non-M&M SCM business has reached 31% in 9 months FY '20 as compared to 26% for the corresponding period last year. Since our business model is asset-light and is flexible and scalable, we have been able to sustain the margins despite our dip in revenues. Our gross margins on a comparable basis under Ind AS 117 expanded by 50 basis points in the 9-month FY '20 period, we believe, as a share of warehousing and value-added services and continued focus on productivity. We should see an uptick in the margins aided by these factors. Let me close off with some other business highlights for the quarter. As mentioned earlier, we saw strong growth in e-commerce, consumer, telecom and freight forwarding. These 3 segments grew, driven by new client wins and increased share of business, coupled with new offerings. We have gained new accounts, which have included large auto components ancillary business, for whom we are doing transportation and warehousing. As some of you would have noticed in the press, we launched our new pharma warehousing operation in Northern India. We have been focusing on retail as a market. And this quarter, we gained some strategic wins in the retail space, both for warehousing and secondary distribution. During the quarter, we completed our integrated management system certification, which is an integrated quality management system, which integrates 3 different standards. This reflects the strength of underlying processes and are continuing maturity of our processes and capabilities. I'm also happy to share that during the quarter, we won the CII Award for Supply Chain Excellence at the CII SCALE Awards 2019. The company was also conferred an award for Supply Chain Brand Excellence at ET NOW industry leaders awards. So with that, let me open up the floor for questions and answers.

[Operator Instructions] The first question is from the line of Sayan Das Sharma from Bank of Baroda Capital.

This is Sayan from BOB Cap. First question is on the PTS segment, sir. So if we look at SCM, revenue decline was more or less on the cards. But PTS for the past 2 quarters has been a bit disappointing given that our revenue growth from this segment could have supported the overall revenue. So why is that happening? And how should we look at this segment go forward, sir?

Yes. So I think it's a great question, and I would refer back to, I think, a similar discussion we had in the last earnings call at the end of last quarter. So if you remember last quarter, I think we showed flat revenues for the PTS segment. And what we had shared with all of you is that what we have seen in this segment is that several of our large customers have actually seen a contraction in their business operations. 2 of our large accounts, both in Southern India, have essentially seen a very significant reduction in their scale of operations. As a result of that, while our share of business remains at the same level which we had earlier, we actually saw a dip in revenues from those 2 accounts. We have added several new accounts to our business, and they are in the ramp-up phase. So I would say that by Q1 next year, we should be back to a normal rhythm of the business in PTS. Now on the positive side, we have been able to hold our margins in the PTS business despite that volume impact. We have been able to leverage our asset-light model and take cost out in line with those reductions in operations. So this is a correction curve. And we expect that by June next year, we will be back on course.

Great, sir. Sir, second question is on the auto vertical. What is the sense on the ground that are we -- I mean, like we're expecting the production logistics should pick up in Q4 due to the transitioning to BS-VI inventory. Are we seeing that on the ground side, according to the production schedule you would have already got for your customers? How has been the first 1.5 months in this quarter?

So I would say, I think -- so there are different parts of the automotive space or the automotive industry. So on passenger vehicles, I think we are optimistic based on BS-IV prebuy and BS-VI channel fill, right? There will be some uptick, but it's pretty hard to call out in a clear way at this stage. What we are seeing is also a lot of supply chain challenges, which our customers are facing. So it's not just an issue of just planning a volume, but you start dealing with very much on the ground issues saying, do I have enough SCR systems available, are my vendors fully capable, how do I transport vehicles and outbound? Because suddenly, you don't have fuel available for BS-VI, you just have to move vehicles out. So you see -- so what we are seeing also is while there are some positive upticks at the macro kind of view at very much on the ground view, there are some tailwinds, there are some headwinds as well. So it's been a bit hard to call it 1.5 months into the quarter, how exactly it's going to pan out. In commercial vehicles, of course, I think the space is a lot more challenged. There are multiple factors, which I think we have shared our view on it before. I think there's a lot of that in the press. So I think green shoots seem a little bit further away in the CV space. But I do feel that on the passenger vehicle space, I would like to that things are bottoming out. We should start seeing, hopefully, some improvement. And obviously, if there's a lot of pre-buys in Q1 next year may be depressed because of that pre-buy, but it should correct itself going into the last 3 quarters of next year.

Sure, sir. That's helpful, sir. Sir, next question I have is on the non-auto, non-Mahindra segment. So basically, if you look at the growth that you mentioned that has been in excess of 25% in the key 3 verticals. So my question is if you can indicate, if you can help us understand a bit more on how much of that has come from existing clients? And how much has the new clients that you have added on the -- over the last few quarters? If you can give us some indication on that, sir?

Yes. I would say -- so roughly half our growth would essentially come from existing logos. So that's -- as I say, existing logos, I mean, there could be existing customers, but there could be something new we could be doing for them. Right. So for example, it could be a paint company, we're bringing one site and now we are doing second site for them, right? So roughly half our volume has come from existing logos, which includes same business growing on new sites coming up. And roughly half our growth has actually come from new accounts we have added. And those accounts are obviously the -- as we commission them, we see the -- as we commission them, we see early cycle warehousing revenue and transportation or what we call secondary distribution follows over a period of time.

[Operator Instructions] The next question is from the line of Prateek Kumar from Antique Stockbroking.

My first question is regarding this non M&M SCM segment. So now the auto segment has dipped to like around 20% share in terms of overall revenue mix. So what would be like the remaining? I mean how the e-commerce, consumer, pharma and bulk could be split? I mean have we recovered the impact of loss of volumes from bulk segment -- from bulk customer?

So let me answer the last part of it, and I'll turn it to Yogesh, obviously to go over it Prateek. So I think, firstly, on bulk, we have added accounts, and we are in the process of building the revenue ramp-up back. I think our market -- go-to-market strategy on bulk now is to see diversified customers, something which we have, I think, articulated in the last earnings call as well. And therefore, we are consciously choosing to ensure that we have a diversified customer base and not necessarily see quick ramp-up on those accounts. So that's -- there is obviously some impact because of slowdown in some of those end use segments as well. But I just want to clarify the bulk direction and let Yogesh handle the segment response.

Prateek, so you know that we right now do not split our numbers by sub verticals within our non-Mahindra SCM per se. We have a non-auto growth in the quarter of 12.5%, which is, if you -- it's a faster growth than what we had witnessed in the first half of the year itself, which means -- I mean, this is non-auto includes the bulk, as Ram mentioned just now. This includes post that impact. And majority of the growth what you see is coming in from the consumer faced industries or consumer pharma vertical as well as e-commerce.

Right because the bulk segment would have also declined year-on-year like auto segment or would still be ramping up only quarter-on-quarter, but year-on-year because there was a big loss of revenue there?

Your hypothesis, your conclusion is accurate, Prateek.

Right. And is this -- so our subsidiary in freight forwarding has also grown faster in our stand-alone business. So is this non-auto business also growing led to that freight forwarding as well, so that's showing 18% growth in that business?

No, that's right. You see growth there as well. And that contributes to our non-Mahindra growth overall. However, you also know that the weightage of that business is pretty low, I mean, single-digit number. So overall contribution will be in that proportion.

And Prateek, just to add to what Yogesh already said, I think the growth in that business is also largely nonauto driven, right? And one of the positive things which we have been seeing in that business is increasing synergy between the rest of our SCM business and the freight forwarding business, where we are now providing solutions to customers, which are more integrated, more cross border, right? Between leveraging both the India SCM business and the cross-border freight forwarding capability. And that's the other thing which is helping us grow in that segment.

[Operator Instructions] The next question is from the line of Krupashankar from Spark Capital.

My first question was regarding the growth. As Ram, you have pointed out that 50% of the growth is coming from existing customers while you are doing new things for them. So I just wanted to understand what would be the share or wallet share increase over the last 2 to 3 years, if you can share?

Yes. I think, I think my specific comment was to -- I think the question around the growth on e-commerce and consumer, where we said half our business is coming from existing growth -- from existing customers and half from new customers. I think from a share of business perspective, it's kind of a moving target because what's really happening, let's say consumer as an example. What's really happening is that our customers are consolidating their supply chains. And therefore, we have a sense of what probably the size of the wallet was earlier. But as they restructure their supply chains, it's pretty hard to estimate what's the new size of the wallet, right? So it's -- so very honestly, that's kind of something which is either hard to kind of really evaluate. What I can say for sure is that in many of our customers, we are picking up the fairly good level of their business, which is getting retendered. So as they restructure their supply chains, I think we are in strong -- we have been in a position to win good chunks or large parts of the business on the restructured network design. On the new accounts, of course, our focus has been very specific to look at where we think there are long-term growth opportunities. So retail is one. Last quarter, I think, Yogesh spoke about the focus we are putting on pharma. And we've been able to grow that, both import, export, domestic supply chain. This quarter, we have been able to get more penetration in the retail segment. So we have been looking at specific end segments within the consumer space and actually looking at, say, how do we create leverage there and how do we build fulfillment solution opportunities. So that's kind of -- so let me stop there and see if you had any other comments.

So just to add-on on that. So assuming -- so given that top 20 non-Mahindra clientele contributes about 63% of non-Mahindra revenues. What percentage of wallet share would we have in these services? I know it's an evolving number, but the broad percentage of wallet share if you can share?

It's pretty hard, I think, to actually do it for the top 20. So what I would say, let me probably answer the question a bit differently to the best I can. I would say for those top 20 customers who comprise 63% of our revenues, we are #1 or #2 in terms of their service providers. That's probably the easiest -- the closest proxy I can actually bring to that.

Okay. Got it. Great. And my second question was on the Mahindra part of the business. Now that we are seeing the BS-VI and also the farm equipment -- sorry, the tractors business, outlook is pretty good for tractors at least. So what is the -- your expectation on the Mahindra revenues?

Is that a question in terms of going forward?

Yes, it's going forward, sir.

Yes. Well, I think, on the ag and the farm sector, I think there is, as you know very well, there are some positives in terms of the overall environment. And I think there are -- there is rural distress as well in some ways. So broadly, I think at this stage, we are still working with our end customers to figure out what their plans for next year are. There are headwinds and tailwinds. Obviously in the budget earlier, last week, there was -- there were announcements which we have more -- also targeted towards the rural sector. So we actually have to see how it plays out. I think at this stage, I am not very optimistic of very high growth. I think there is a sectoral distress, which needs to be corrected for. There is also increasing productivity in that sector, which also, as you know, means that the demand for equipment, et cetera, starts coming down. So while there are green shoots there, I think there are some headwinds as well. And we are certainly putting that together along with our customers to build a view for next year.

Okay. Got it. But just to add on, have you won any Mahindra orders over the last 9 months, which is non-automotive and farm equipment?

Well, so I think we -- typically, every Mahindra business would essentially be an existing logo. So it's not going to be a new logo as such, Krupashankar, because we are already doing business with all of them. So based on how their business has moved, we have moved up and down. We've done some more work, let's say, with Mahindra Defence, right? But on the other hand, our volumes with the solar business has come down. We have grown our business with FirstCry. We have grown our business with Java quite significantly. We have added some work on secondary distribution with the farm sectors distributors, the Mahindra farm sectors distributor. So those are 4, 5 examples of what we have won. But Krupashankar, technically, they were all the existing logos.

The next question is from the line of Manish Goyal from Enam Holdings.

In opening comments, you did mention the overall revenue share of Mahindra & Mahindra total. Can you please repeat that number? And was it for Q3 or for 9 months?

Manish, it was a 9-month view. And what we had said was it was 51% for the 9-month period for year-to-date compared to 56.5% for the same period last year.

51% for 9 months.

Yes.

Okay. Would it be possible to give us the PTS revenue from non-Mahindra in Q3 and 9 months?

Manish, we don't have it handy here, but if you allow me, I will circle back with you on this data.

Okay. Okay. Fine. Sorry, I just -- you did mention about within Mahindra Group, you are -- like there are few opportunities which you are like building up. So any sense as to like what kind of revenue share or growth we can see going forward?

So I think so we have -- as you know, we have 3 big parts to that pie, if you may, Manish. One is project-based businesses like solar or defense. The second one is retail-based businesses like FirstCry. And the third one is essentially a 2-wheeler business, if I just call that out separately. So I think if I look at these 3 different buckets, I think the project business, it's really up and down, it moves project to project. And I think and I mentioned this earlier, there aren't sustainable or clear trend lines around it. On the retail business as well as the 2-wheeler business, we are continuing to see reasonable growth there. As you know, Java continues to expand its position in the 2-wheeler market -- at the high end of the 2-wheeler market. So we obviously have 100% share of business with them on the distribution side. We provide our integrated solution, delivering from the plants up till the end dealers. We do the whole supply chain. So we have a strong position there. So obviously, we are aligned with their growth. And then on retail businesses like FirstCry, we do see some amount of growth which mirrors their own growth.

Sure. And also in past, you did mention that probably the auto ancillary vertical also, like, we are looking at that. So any development on that side?

So look -- so Manish, we are continuing to focus on that. I think -- and I mentioned in my opening remarks that this quarter, we added a couple of new accounts in that space. Both of them were Tier 1 component manufacturers who manufacture multiple products. So it's not just a single product line, but actually to multiproduct or Tier 1 component manufacturer. So we have added those accounts. As you know, unfortunately, I think with the switch over from BS-IV to BS-VI, there have been deep cuts into those supply chains. So we are not -- I've not been able to see the volume uptick which we expected. And -- but that is not something which is going to back us off from executing that strategy. So I think I mentioned earlier that, that's a long-term move we are making, and we'll continue to execute that and continue to focus on adding new logos in that space.

The next question is from the line of Ankur Periwal from Axis Capital.

First question on the non-auto business here. So over the years, let's say, last 1 or 2 years, the top 20 client set, the names of these clients, has there been any upgrade or any downgrade, wherein some new client has ramped up and become a top 20 customer for us? Or it's largely a similar set of clients who are driving this growth for us.

Yes. So Ankur, one, it's good to hear from you. Yes. I think there have been changes in the top 20 accounts. On the positive side, none of the -- so one thing I'd say, none of the accounts were there last year in our top 20 have left us, right. But what we've really seen is a decline in their volumes. It's either been -- and most of them, very honestly, have probably been automotive companies because they have seen that sharp decline in their business. And therefore, they have moved a few notches down in the top 20 or they spilled out of the top 20. What we have then also seen is 3, 4 new logos which are coming, which are really more on the consumer space and the e-com space. So we've just seen the swap between e-com, consumer, which has been driving our growth and auto which has been declining, but the accounts are all still with us. We have not seen any loss in account. Only -- even the bulk customer where we saw a decline on, we saw a decline in share of business. But as you know, we still do business with that company.

Sure. And the decline in business for the guys who have moved to beyond the top 20 was because of their slowdown in business or it was that probably we exited some of the businesses, either purposely or because of competition.

I think it's a little bit of both. I think, obviously, on the bulk customer, we made a strategic choice that we will not...

Yes, non-bulk. Excluding bulk and auto because bulk, you had already explained earlier.

Yes. So I say excluding bulk and auto, we have -- nobody has first slipped out of the top 20.

Sure. So in your earlier comments, you did mention that you have already expanded into pharma, which is a new vertical for us. You did mention expanding into retail as well. 2 questions there. One, how different the expertise required here versus what we have been doing with consumer -- the nonauto part, let's say, with consumer or a durable or e-commerce. And secondly, how has been the ramp-up of the older new accounts added over the last maybe 1, 2 years because in between, we did mention there was a slower ramp-up because of the slowdown. But are we seeing any early sign of recovery over there?

It's a very wide question, Ankur. Let me try and take the first part of it. I think what we have seen in terms of -- every time we enter into a different part of the consumer business. As you know, our consumer business is a lot of end markets with the -- it's got durables, pharma, retail, the FMCG, so on and so forth. Clearly, each of those end markets actually have their own different supply chains, right? So obviously, there are -- in the solutions then, we take a fairly standard solution template and we actually tweak and adjust it both, to the specifics of the industry and to the specifics of the customer, right? So there are changes we have to make. There are sometimes new capabilities you have to add. For example, pharma required have a lot more understanding about quality, about certification. Retail requires a lot more capabilities around returns processing. So we have had to build differential capabilities. And that's also one of the reasons why we have been focusing on targeted end markets instead of just doing kind of carpet bombing kind of sales approach. So that hopefully answers your first part. I think the second part, I think, in terms of ramp-up, I think what you typically find in customers where we do your secondary distribution and warehousing is we see the warehousing revenue the moment we go live. And the secondary distribution revenue tends to go along with the company's growth. So there hasn't been, I would say, a consistent pattern there. So whenever we have done both warehouses have generally been going live with expected venue very early. But the transportation revenue has followed. And -- but by and large I think we have the more good stories in terms of deployment to target than otherwise. And I think at some stage, we'll probably turn and circle back to you with some more insights on that.

[Operator Instructions] The next question is from the line of Ankita Shah from Elara Capital.

My question was more to understand how has the overall 3PL market done in this first 9 months vis-à-vis our performance because we've seen slowdown across companies. So how has the overall 3PL market behaved in the last 9 months?

Well, I think it's -- to be honest, I think you obviously see a degree of publicly released numbers. And I would say that within the 3PL space, there are I think the express logistics market continues to do well. It is showing good growth. And I think the opportunity remains there, especially as customers focus on distribution, and they generally would like to focus on express or part truck load kind of applications. I think 3PL companies which have got -- who are long on -- around line haul transportation, obviously has seen the impact of slowdown in end markets like auto. Auto is a very large part of a large end market from those 3PL companies in India and globally. So essentially, all leaders in the industry, I think, would be impacted by auto, whether it's us or whether it's other players who are in this space, right? So that's at least anecdotal. I think we are -- obviously, I think, customers of 3PLs who are warehousing anchored, are really around warehousing businesses probably continue to see growth, right? Because as you see in our own numbers, there is strong growth in warehousing based services. So I think it's a bit of a -- it's a bit of mix and match. I think companies have their own strategies, and therefore, they are seeing differential growth. I think overall, my view would be that the 3PL industry, the growth has definitely slowed down. We still believe the industry as a whole has grown, right? Driven by the growth in express, driven by the growth in e-commerce and FMCG. So those remain fairly large end verticals for the overall 3PL industry. And we think that growth there has overall continued to be a tailwind for industry as a whole. Obviously, those of us who are more auto driven, have had to kind of weather the challenge that the auto industry provides.

Okay. And would you be able to share what would a share of passenger vehicles and commercial vehicles that we handle in our auto segment? And secondly, what would be the average capacity utilization at warehouses?

Okay. So I'll take the second one first. Obviously, in terms of our warehouses space, I think we have no white space, which is there right now. So essentially any -- and there are the only things which are -- we have some warehouses which are under construction, but we are not paying for that. All the warehouses space, which we are paying for, essentially, is all contracted out. There is no white space in our network, right? So I just want to clarify that. So in that sense, how you call it, is probably 100% utilization. In your first question, I think -- first part of that question, will we look at passenger vehicles and commercial vehicles? We do different services for those industries. So we do inbound for some of them, we do warehousing, line feed and we do outbound. So if you just divide those 3 buckets, and the value intensity of each of them is very different. So typically, what you'll see is that the value intensity in an automotive supply chain of outbound is very high. So it's a bit difficult to just take a revenue cut on our volume-based on passenger vehicles and commercial vehicles because of that. What I would say is that we have in the auto and farm sector space, I think our largest customers are passenger vehicles, followed by farm and followed by commercial vehicles. Anything you want to add, Yogesh?

The next question is from the line of Vikram Suryavanshi from PhillipCapital.

Sir, my first question is about non-Mahindra supply chain growth. If you look at 9 months, we are below 5%. And we have almost like 80% business, which is non-auto and non-Mahindra. So what kind of growth rate we can expect because in this segment, despite having non-auto, we still see the growth rate at a very low single digit?

Yogesh, do you want to take that first, and then I'll do it?

No. I guess, I mean, we would not have a guidance to be given in terms of growth ahead. But just to explain the growth, what you see of single-digit number there for -- on the non-Mahindra piece. Beginning -- starting this year, we had an overhang of reduction in large portion of our revenue from a large customer in the bulk segment. So that what softens the entire growth what you see that we reported.

Okay. And in that, basically, so in warehousing, what growth we are seeing, how much warehousing capacity we can expect? Or basically, my second question is also related to that, what was the CapEx for 9 months and full year and probably how that warehousing capacity will ramp up happen going ahead?

So we'll just answer the CapEx question. Yogesh, do you want to do that?

Yes. So our CapEx, obviously, is at times I mean linked to the warehouse space, we add under our management, and that too what type of customer we get in that warehouse space which we allocate or provide for them. What we have done is about 1.4 million square feet of warehouse space addition this year to our customers and links to that primarily, in addition to what you would need for regular existing customers at times as well from a refresh perspective, CapEx spend would be around INR 45 crores till date.

The next question is from the line of Ronald Siyoni from Sharekhan.

I had just 1 question that in the Mahindra group, the revenues have dipped by about 18%. However, if we see during the past quarter, it had dipped by around 19-odd percent, which had followed more or less the dip in volumes in say Mahindra Group? But this quarter, they have seen a 7% decline in both auto and combined volumes. But our growth is very steep compared to that. So what is the difference here, actually?

Great question. So I think what you -- so our revenues to them are a combination of inbound and outbound, right? So let me just start at that level, Ronald. So what has really happened for us this quarter we just went by is that, as they started reducing purchases for BS-IV to BS-VI transition, obviously, inbound volumes have been lesser. And for us, inbound -- interunit and inbound movement has come down. So where we've actually seen the reduction firstly has been at that end of it. So that mix has been lower for us. And I think there was a question earlier from somebody saying that do you expect stronger production sets to happen this quarter because of BS-VI. And we had said, yes. We actually see the pipeline getting filled. So you're just going to have a time lag between that, Ronald, which is affecting our growth. The second thing is that if you look at what we moved to them on outbound, a lot more of moment which is there this quarter from an external sales perspective was shorter distances. Longer distances got replaced a lot more by rail to help balance out their cost perspective. So obviously, we saw that as an impact. So clearly, those are 2 things why we have shown sequential growth on the Mahindra business. Obviously, the year-on-year decline for us has been probably steeper than what you might have seen for M&M or what you have heard about for M&M.

Right. So follow-up on this, that if the cargo gets shifted to -- more towards rail with DFC and everything and clients going for rail transfers. So would that also continue to affect us? And this Mahindra volumes, would they come back to us?

Yes. So as you know, we do -- we actually do the multi border business for M&M as well. What actually happens is that on quarter-on-quarter, the shipment profiles change, and therefore, you see this balancing, which happens sometimes between quarters. As I mentioned earlier, the larger challenge for the quarter in terms of our revenue dip was the change on the inbound side rather than on the outbound side.

Okay, sir. And the second question was that you had mentioned that this 3 gives different realizations for the sale. So is it that outbound is the highest and then inbound and then the in line, right?

So they don't give us different realizations. The spend, Ronald, is different. So typically for auto OEM spends INR 100. They probably spent 60%, 65% on outbound and 35% to 40% on inbound and in plant. So the realizations there and profitability then are not different, right? I think obviously, our warehousing and value-added services profitability, it's higher than our transportation profitability always. So I don't think -- so I was just -- probably I didn't come across clearly, but it is not a realization of profitability comment. It was a share of wallet comment.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

If you can help me understand the warehousing expansion that you're going to undertake for the next 18 to 24 months. So from the 16.5%, how should we look at your warehousing capacity?

So I think let me share 2 data points with you, Abhishek. First, I think, is what's driving the warehousing. What's driving, obviously, our warehousing growth right? Is largely our -- is it highly increasingly our growth in e-com and consumer end markets. Now that's -- those are markets where we are confident about sustaining our growth curve, right? So therefore, one, I think we believe that we can maintain this growth curve right in those markets. And those obviously carry a higher density of warehousing. You have seen in our opening comments as well as in the investor deck, there are share of warehousing as well as a percentage of total revenue has gone up significantly. Now the other data set I will share with you. I think we have generally said that earlier as well that we expect to be in the 1.5 million to 2 million square feet a year range. And that's something which you are confident of basically meeting or touching upwards of that over the reasonable future. I won't share specific guidance because we generally avoid doing that, but those are 2 data sets where I think are indicators of the way we see the business.

But whatever rental or revenue per square feet that you're making today because you're largely at 100% utilization. Is there a scope of further increasing the yield on that?

Yes. I think there are a couple of things. One, of course, is I think the different kinds of warehousing, which you do, right? So Abhishek, you do basic storage, you do value added, you do mechanized, you go automated. So obviously, especially on our build-to-suit facilities, we are always interested in looking at churn. And I say in that can I actually replace a basic storage kind of operation with something which actually provides me more yield per square feet. So to that extent, I think the real estate is churnable. It may carry some level of expenditure around MHEs or racks, but intrinsically, it is scalable to some extent, right? So that's something which we do try to work on. However, we also have a fairly aggressive and clearly laid out expansion plan around warehousing. And what we've been able to often see is that we actually do -- are able to keep our existing customer and meet new ones based on that footprint strategy we have.

Okay. Okay. And sir, just last one from my side is, in the annual report, in the vision thing, you've mentioned that you have a vision to rise to a INR 6,000 crores logistics service provider by 2021. Any thoughts there?

Well, I think that -- I think you captured it very well, the vision for the company. We obviously, at that stage we made it, put an aspiration target. Based on the environment which we are in, that one, we kind of framed the target to a window. Now our goal -- our target still remains that way. Obviously, it will move up and down based on the environment. But our goal is to be there sooner rather than later.

The next question is from the line of Zahid Bagwan from Wealth Managers.

Can you please share details on new client additions this quarter, like for warehousing, transportation or store line phase or control tower.

Yes. So we -- control tower, as you know, for us, is actually a capability. We don't sell it -- we don't sell it as a service. I did mention a few things, which I said in terms of account acquisition. So in the auto and engineering space, we did add a couple of accounts this quarter, which are both component manufacturers. Both of them multiproduct component -- Tier 1 component In the pharma space, we continue to add -- actually increase our share of business with existing accounts. We've got new transport lanes, is a good example of that or expanding into more freight forwarding with them as an example of that. In the retail space, we also added a couple of accounts, 2 strong retail brands in the apparel retail space, right? Where we are doing warehousing and distribution for both of them, right. So those are some illustrations of accounts we have added. They are a combination, obviously, of in-country transportation, cross-border transportation and warehousing and distribution.

So non-Mahindra SCM part, so with -- non-Mahindra part, focus on warehousing and clients that we have added in the last 3 to 4 quarters in warehousing space are not....

Sorry so, we've lost you.

[Operator Instructions] The next question is from the line of Kunal Bhatia from Dalal & Broacha.

Just wanted to get the sense on the growth one could expect from the non Mahindra SCM business because, again, to reiterate the fact that about the vision statement. So yes, agreed this year was not so good. But going forward, earlier we used to mention that there is a possibility that this part of the business could achieve a CAGR of about 25% plus. So how do we see this going forward on a 3- to 5-year period?

Yes. I think -- so Kunal, we have been growing at high single digits this year in the non M&M business -- non M&M SCM business. This quarter, we grew at 12%, 13%. As you know, we have -- in that mix, we have 2 segments that are growing at the 25%, 30% level, which we had hoped and targeted to, which is the consumer and e-commerce space. The third segment, which has been auto has been down because of what you already talked about. And then on the bulk and commodities business, we had the adjustment of the reduction in business from one account. So it's 4 broad markets within that number, which we use for non M&M SCM. 1 has been economic, 1 has been a specific connection, and 2, I think, are growing at an aspirational level. So our belief is that, obviously, we will correct and adjust for the bulk of the customer correction, which will play itself out over the next couple of quarters. And then we will basically be able to reset the rest of our business to that 25%, 30% growth, contingent to when the auto correction happens.

My second question was regarding the new pharma warehouse, which we have started. So if you could just give a bit more or depth into that, as in how is the square feet? And how is the share throughput per square feet on that?

So to be honest, I don't have that readily with me, Kunal, but I'm happy to have our team reach out to you and circle back. What I can tell you is a little bit about what the operation itself is. We essentially do an integrated, what we call a fulfillment distribution operation from there. So it's a temp controlled warehouse, where we -- warehouse, we store more than 2,200 pellets of different categories of drugs. It's temp control at a rack level. And from there, we essentially do 2 levels of distribution. We distribution to -- we distribute other plants. And we also do distribution to CFAs or resellers for that company. So both of those are time defined distribution with service level metrics around each of those. So that's kind of what we do from there. That's, we believe, a strong template of how we provide integrated services. Because what happens in an operation that Kunal is while one part of it is the warehouse, part of that warehouse, we are actually able to do a lot more of transport based revenue, which is completely asset light. So we do invest some of our assets in the warehouse, but then we multiply that with revenue from transportation, which is completely asset light. And that actually expands our ROCE at a cumulative level. So that's kind the strategic basis of our operation. It is for one of India's largest pharma companies. It's dedicated to -- for local distribution pretty much to all of their North India markets. And in terms of more specifics in terms of square feet, et cetera, please allow Yogesh or myself to circle back with you with those details.

Okay. Sir, and it would be a higher margin, I suppose.

Yes. On an integrated basis, including distribution and the transport and warehousing, yes, it will be accretive.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

So thank you, everyone. I hope that we have been able to answer all your questions satisfactorily. However, should you require any further clarifications or would you like to know more about the company, please feel free to contact our team or SGA, our Investor Relations advisers. Thank you all for joining us this afternoon. And we thank you and wish you all the best. Thank you.

Thank you very much. On behalf of Mahindra Logistics Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.