Mahindra Logistics Limited (MAHLOG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mahindra Logistics Limited Q4 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 for the disclaimer. Thank you, and over to you, sir.

Thank you, Reo. Good evening, everyone, and thank you for joining us on the Mahindra Logistics Limited Q4 and FY '24 Earnings Conference Call. We have with us Mr. Rampraveen Swaminathan, MD and CEO; Mr. Saurabh Taneja, CFO; and the senior management team of the company. I hope everyone has had a chance to view our financial results and investor presentation posted on the company's website and stock exchanges. We will begin the call with opening remarks from the management, followed by an open forum for Q&A. 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, the MD and CEO of Mahindra Logistics Limited, to make some preliminary remarks.

Thanks, Shogun. Good evening, everyone, and I trust you all have had a chance to view our presentation and financial results, which are available in stock exchange and our company's website. As we wrapped up the year, in the interest of time, I'll focus our comments this time on a shorter update on markets, a more detailed overview of our operations and some key matters of significance, obviously, a financial summary and a bit of the road map for the future, which is beginning with our domestic market. I think, at summary level, the broad direction for end markets has remained consistent with prior quarters. We do continue to see strength in the overall automotive segment, driven by growth primarily in passenger cars. Commercial vehicles remain muted. And during the quarter, we did see some impact of higher NPDs, or no production days, and lower volumes as some of our CV customers cut production to balance supply and demand. The Farm segment continues to be sluggish with weakening lead indicators. The short-term outlook remains soft. We have seen a fair amount of correction in Q3 and Q4, and we don't expect any further weaknesses other than seasonal variations, which are typical to the industry. The consumer segment, CDR, FMCG, pharma, et cetera, have seen muted kind of volumes and demand mixes through the last 3 to 4 quarters. However, a growing Indian economy, increased consumer spending power and enhanced access to reasonably priced high-quality goods will continue to have an impact on the sector. The overall size of the consumer durables market by FY '23 was estimated at INR 1,303 billion, and the market was -- is expected to grow at around 13.5% to 14% CAGR until FY '28, driven by rising rural consumption, a shorter replacement cycle, improved retail penetration, the availability of a wider range of brands and products at various price points. Our long-term view for the segment remains extremely positive, though we do see short-term softness in rural and urban areas as well. Many of the customers in this segment are now honestly reviewing the supply chain design as things have settled down post COVID, and this is resulting in a higher number of bids or RFQs for integrated logistic services. E-commerce has been a challenging end market for us in the last 3 quarters of the year; however, we have seen a quick and strong uptick in order intake in the fourth quarter with stronger growth in hyper-local grocery and specific product segments and geographical markets. The mobility segment is showing a strong growth in B2C demand with increased travel and seasonal vacations. The B2B segment continues to show a slow, but sure growth as return-to-work has accelerated to higher levels. And this is evidenced in our volume growth as well. Before I move on to operations, let me just make a quick comment on cross-border logistics. While there has been a small uptick on ocean freight prices in the past quarter, overall markets and pricing remains subdued for cross-border logistics. We did see a moderate impact of the Red Sea crisis on pricing, but we could not yield significant benefits of the same. With an increased focus on Make in India and a greater spread of exports to other geography, cross-border logistics remains a key growth area for us for the future. And we'll continue to invest in that space as we try to focus on volume recovery. Moving on to our business operations themselves. Sales, I believe sales across all our segments showed a positive trend in Q4. The third-party logistics business had a strong order intake with an annual contract value of over INR 100 crores, which is also being mirrored -- which is also mirrored by strong growth in our last-mile delivery business. Growth largely came from a higher share of wallet in existing customers, such as Hindustan Unilever, Cummins, Meesho, Marico, and a few others as well as new logo additions such as Mars during the quarter. The freight forwarding business, as I mentioned earlier, has seen broad macro challenges. But on a sequential basis, did see growth with a higher share of ocean volume driving most of our growth, though we did have some softness late in Q4 on our air products. In the Express business, we added 12 logos during the quarter, and we saw grown higher synergy between the Express business and our 3PL business. However, our sales focus has been on driving lean utilization as we try to look at cost optimization, margin improvement and thus, we have been selective with customer growth. Overall, our focus on sales synergy across all our segments remains high. 67% of the top 100 customers of MLL as a group, in supply chain, now consume over 2 services out of the 4, which we largely focus on, and 25% of our revenue is from warehousing and integrated solutions. From an operations perspective, operations during the quarter were stable across all parts of our business. In the 3PL business, we did have 2 key challenges, higher labor costs during the quarter and the impact of the NPD or lower volumes in non-Mahindra automotive customers. These were largely offset by operational efficiencies, but we were not able to gain further accretive earnings benefits from those efficiencies. Across all the businesses, our operational focus has been strongest on the Express business. The focus on cost optimization and productivity has helped the costs in that business come down, enhancing our profitability, which I will share more on later in these comments. Volume in the Express business during the year -- during the quarter was around 75,000 tons, which was lower than our target levels, as we try to focus on lane level productivity and yields rather than broad volume growth. From a people, technology and ESG perspective, Mahindra Logistics continues to be a leader in D&I across our industry. During the quarter, we strengthened several people and diversity and inclusion initiatives across our business. The launch of our LogiOne technology platform continues to make progress. During the quarter, we upgraded several of our sites to LogiPick, our new WMS system, or warehouse management system, which is integrated with LogiFreight and other elements of the LogiOne infrastructure. Our system -- during the year, we also completed a significant transition on our technology infrastructure, which has strengthened the businesses, integrated services as well as provide better data protection and lower our vulnerability on our overall cloud-based architecture and that was completed in Q4 of the year. From a sustainability level, our focus remains on 3 pillars: decarbonizing our supply chain, green infrastructure and driving circularity across our business. We finished FY 2024 with over 27 million green kilometers across our electric vehicle fleet and over 3.6 million square feet of renewable-powered warehousing. We have around 3.5 million square feet of IGBC Platinum, LEED certified buildings, which constitutes nearly 80% of our build-to-suit or multiclient infrastructure. A few matters of significance for the quarter, which I think have -- things, which we have covered in earlier calls as well or are relevant to the quarter's results. Firstly, from an MESPL perspective of Express business, our improvements in the business remained on trajectory, which were indicated earlier. Our EBITDA for the quarter improved Q-o-Q by INR 8 crores to a loss of INR 14.8 crores during the quarter. Overall, losses at a PAT level shrunk by INR 8.9 crores. Our focus remains on becoming EBITDA positive by the end of Q2 F '25. The core businesses, especially the third-party logistics business, saw the impact of some onetime nonrecurring charges. During the quarter, we reviewed accounts, which we have been ramping down were discontinued since FY '22, specifically around the commodity segment. As we review those, we obviously looked at the impact of that and we took a charge, which reflected the exposure we have to those segments. The collective impact of this was around INR 10 crores at a PAT level. These remain nonrecurring charges. At the overall level, our ECL dock, our non-Mahindra supply chain, 3PL supply chain receivables level is between INR 500 crores to INR 600 crores. And at ECL level, our ECL provision is around 0.3% to 0.4%. So overall, our overall exposure remains extremely muted in terms of credit quality in our business, but this is something which we thought we had to review as we had largely exited the segment and discontinued that and some other operations in the rest of the business as well. During the quarter, the IT transition we spoke about earlier also had a onetime cost, right, which was around INR 2 crores at a PAT level. This right -- collectively, these added around INR 12 crores at a PAT level. These are nonrecurring costs. And adjusted for the same, we would have reported an EBITDA of INR 70 crores for the quarter at a consolidated level. This quarter also shows a fully integrated impact of the Whizzard, majority acquisition we completed earlier in the year. Integration of the business, the rest of MLL is on track, and we are confident that it will be accretive to the business on full integration. Let me just move on quickly to finance consolidated and quarterly performance for the year. From an overall Q4 F '25 level, revenue for the quarter increased by 14% year-on-year to around INR 1,451 crores. Revenue from warehousing and solutions segment with 3PL business stood at INR 268.3 crores in the quarter, representing 24% of our revenue in the segment. The supply chain segment, which includes our 3PL, freight forwarding, last mile delivery, and Express businesses contributed 94.25% of the overall revenue, and the mobility business contributed to around 5.75% of our revenue in the quarter. Gross margin on a fully consolidated basis stood at 9.4% in Q4 FY '24 compared to 10.2% in Q4 FY '23. Gross margin without the impact of the MESPL business was 10.6%, which was an improvement year-on-year. EBITDA for the quarter stood at INR 56.4 crores, up from INR 52 crores for the same quarter last year. Despite the impact of the consolidation of the Rivigo acquisition, EBITDA was also impacted, as I mentioned earlier, by the onetime charges, which were approximately INR 12 crores at a PAT level. On a consolidated level, our PAT for Q4 FY '24 stood at a loss of INR 12.8 crores, an improvement versus the prior quarter, which was a loss -- sequential prior quarter, which was a loss of INR 17 crores. Moving on to specific components. At MLL, revenue for the quarter was INR 1,183 crores, up from INR 1,054 crores for the same quarter last year. PAT for the quarter was INR 8 crores as compared to INR 22.4 crores in the same quarter of last year. As I said earlier, these reflect approximately INR 12 crore impact of the onetime charges, which we have taken during the quarter. In our freight forwarding business, LORDS freight revenue for the quarter was INR 63.4 crores, up sequentially compared to the prior quarter, but down compared to the same quarter of last year, where revenues were INR 72.6 crores. PAT for Q4 FY '24 was INR 1.2 crores, up 33% from the corresponding quarter for the prior year. Our Express business, revenue for the quarter was around INR 97.2 crores. We did have a PAT loss of INR 24.9 crores, which is a INR 8.9 crores improvement versus the third quarter of FY '24. In the mobility business, revenue for the quarter ended at around INR 83.7 crores, up 11% from INR 75.3 crores for the corresponding quarter of last year. PAT for the quarter stood at around INR 2.3 crores. We now are in sequential trend line of profitability and with the full integration of both the Alyte and the Meru businesses, we have been able to kind of turn that business around. Whizzard, which represents half our last-mile delivery business, reported a revenue of INR 32 crores for the fourth quarter of FY '24. And the PAT for the quarter was around INR 10 lakhs was partially just about breakeven. The 2x2 Logistics business, which largely provides car carrier services to MLL for a large part, has completed a turnaround. The division made a profit of INR 1.1 crores for the quarter as compared to a loss of INR 30 lakhs for the same quarter last year. From an overall perspective, we continue to be diversified across all our businesses with a strong contribution of both auto and nonautomotive businesses. Our automotive business, including Mahindra and non-Mahindra clients, contributed around 60% of our overall revenue across all our business segments and the nonautomotive business contributed around 40% of our business. As I mentioned earlier, that's largely split across consumer discretionary -- discrete manufacturing and e-commerce broadly across all 3. So as you look forward -- as we come to the end of FY '24, we look forward to the coming year, we remain confident in our strategy of providing integrated and customized solutions across the supply chain to our customers. Our core businesses are now showing strong growth tailwinds and the Express business margin improvements are on track. Our overall technology ecosystem will provide customers the opportunity to visualize and orchestrate the supply chain and not just specific elements of it, such as trucks, warehouses or packages. We continue to invest in our green logistics capabilities focused on becoming net zero by 2040 and empowering our customers' energy transition. I believe that at MLL, our greatest asset is our people. And FY '24 has been a challenging year, but a year where we have made improvements across our business and that's how we are turning around the trajectory in our Express business. With this, I'll open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Alok Deora from Motilal Oswal.

Sir, a couple of questions. So first on the standalone business, here this other expenses have shot up quite a lot. Even if I look at Q-o-Q basis, it's increased from nearly INR 27 crores to INR 46 crores in one quarter itself. So what happened there if you could -- is the one-off you were talking about? Or if you could just elaborate on that?

Alok, and thanks for joining us. Yes. I think that largely represents just the onetime charges we had. I think, right, I think if you see between last quarter -- last year during Q4 -- Q3 and Q4, the cost went up by around INR 17 crores. All of that largely is a onetime charges at a pretax level, so the INR 12 crores at a pretax level would be pretty much all the difference, Alok.

So actually, sir, that -- I mean if I look at in the -- as other expense, it's quite a large jump. So what's that regarding? I mean, it's for any particular project? Or I mean...

No, it's -- so to be honest, I think this is just -- these are obviously for purpose of reporting simplification. It carries a lot of other line items inside it. And I think when you look at the -- if you refer to last year's annual report, Alok, you will find the schedules, which detail out the other expenses, but it includes [ PDD ] costs, it includes IT and IT costs, it includes infrastructure costs, it includes some of our CSR work, our marketing and brand work. So it's a wide set of different categories under it, Alok. It's a bit of a catch-all category for a wide variety of expenses. And therefore, it's -- but with the big movers in that are our technology costs and regarding our ECL adjustments, which are really the things which move quarter-on-quarter in a significant way, the rest of those generally tend to be fairly within kind of an inflationary window. But what I would -- I think if you look back at last year's annual report, I think, you will find a breakup for the INR 37 crores, which we reported last year. And I think, obviously, we have had some reclassification this year with rentals and so the other things we add into this year. When you see the annual report this year, I think, you will be able to get a better appreciation of the breakups.

Sure. And sir, in the Rivigo business, so while the losses have come down from maybe INR 22 crores to INR 15 crores, I mean, the revenue growth has been pretty muted. I mean, so what's been the volume growth that you mentioned about handling 75,000 tons? So what's been the growth Q-o-Q?

Yes, as I said, we've added on 12 logos. I think on a daily run rate basis, growth has been around 3.5%, right? And our big focus, Alok there, I think I mentioned in my opening comments has been on really getting our lean utilizations up. So we're really focused on driving sales, on getting capacity utilization up. If you remember last quarter, what we had said was that we remain focused on running the network at very high service levels. And that remains -- when we try to do that, obviously, we run more aggressive schedules across our network. We do get exposed towards lower utilization. And so most of the sales effort over the last quarter has been on balancing that. And that is why you are seeing actually the margin improvement on flat volume or reasonably low volume growth. We are seeing that impact because of that. To answer your question directly, we think, sure, volume tonnage growth was around 3.5% quarter-on-quarter. We did see some set off on that because of a marginal drop in yield. But overall, in that range. And we can pull out more specific data, Alok. If you mail us separately, we'll give you more detail.

Sure. And so earlier, we are looking at turning EBITDA positive by end of FY '24. And now we were talking about, I think, September quarter, we'll be kind of being EBITDA positive. But this first quarter due to the election year might be kind of a muted activity and election quarter specifically. And then we hit the monsoon period also and also the festive season will kind of hit in the third quarter. So how confident are we of getting EBITDA-positive because most of the other companies in the Express side are talking about pretty muted growth in the first half of FY '25. So just your thoughts, please, on that?

Sure, Alok. And it's a fair reflection. I don't think we are -- I don't think we expect to see a lot of volume growth in the first half of the year. But in the second half, as you get into the season, in the festive season, obviously, we should see a bigger impact. I think for us -- and that's why I think we have been more focused on cost, Alok, and cost optimization, driving productivity across the entire system to get much of the improvement, which is there. So I'd say we have a fairly high level of confidence to hit -- a very high level of confidence to hit breakeven by -- at an EBITDA level by end of Q2 of this financial year. That's a point we had pegged around 2 quarters ago. And we have kind of said that we do expect to start seeing a hockey stick of improvement. In Q3, we saw a 10% reduction in EBITDA losses. This quarter, I think you've seen something like a 27%, 28% improvement in EBITDA, and we hope to sustain that improvement through both a combination of cost and volume over the next couple of quarters. But obviously, we are not going to have a gangbusters volume story because I think demand is slightly on the muted side.

Got it. Just one last question. So this INR 97 crores run rate, which we have done in the fourth quarter, even if it remains pretty muted as we are talking about, say, maybe INR 98 crores, INR 99 crores sort of a quarterly run rate. So still this INR 15 crore loss could keep coming down? Or it would kind of prolonged?

So Alok, I won't give a demand guidance, but I think as I said at this stage, while we are factoring in some of the weakness in our markets and the volume we expect to see -- volume growth, we expect to see, we are pretty confident about our ability to kind of meet that -- meet the set point. I think as I mentioned last quarter as well, there is an hockey stick improvement, and we are starting to hit that hockey stick. We still are not exactly in the purple patch of improvement, but we are in good stead to get there.

The next question is from the line of Sudarshan Padmanabhan from JM Financial.

Sir, my question is on the comment on the supply chain management business, which we have seen an improvement, specifically towards the e-commerce side, where we have seen the entire industry seeing some kind of a struggle. We have seen the industry, as you mentioned, has turned around. If you can elaborate a bit about what if, on the environment side, move the needle? And how sustainable is it? Is it primarily because we are seeing a lot more orders coming into the organized players as compared to the unorganized players? A little bit more color on that.

Sure, Sudarshan. I think as I consistently maintained over the last few quarters, I think e-com demand still has been growing. I think for e-com marketplace, and I think you can see that in their numbers as well, there has been growth there. What specifically was a challenge for us in the first half of the year was that they added a lot of capacity in the in-house operations. And as they did that and volume did not grow at an expected level, a lot more volume was in-sourced by them. And we did obviously have seen an impact of that as a very large partner for all the leading marketplaces in the country. Now as we came to Q3, we've kind of bottomed that out. Most of that impact has been taken in and the sites, which had to be shut down and in-sourced, have already been done. Since then, we have been seeing 3 big parts of our strategy playing out. I think the first one has been a focus on specific niches. So I think as a company, we have really not been focusing on just the traditional categories of small pack electronics, but we kind of turned our focus towards segments, like grocery and so on, where we think we actually have both more value addition and the ability to provide a more capable service. And that's -- so those niches have actually been apparel, grocery have been big growth boosters for us. The second one, obviously, is an account expansion. We have expanded or deepened our presence in some of the other -- in both emerging marketplaces as well as in some brands, and that account expansion has been a part of growth for us. And the third one has been around adding new services. For example, we started an integrated line haul service in partnership with Flipkart. We've kind of been doing more integration between our fulfillment centers and last mile delivery operations. So both focus on new offerings and integration has helped us, I think, increase our penetration. From a sustainability perspective, I think all of our deals are on. All of this is in our e-commerce business around 25% of it. So obviously, we have exposure that the e-com both through our third-party logistics business and our last-mile delivery business. Around 15% to 20% of that is pure -- 15% of this is purely transportation, which moves up and down. The rest of the business is generally contracted out for at least 2 to 3 years. So from a sustainability perspective, I don't see a significant challenge as we go forward. We have obviously taken that hit of the adjustment, which we had to, right? From a short-term perspective, obviously, volume remains a challenge. We do have minimum guaranteed volumes in all our sites. But predictably, of course, we make -- we are much more profitable if those energy bills are breached by a substantial amount. So that challenge remains. But from a downside risk, we don't see anything substantially at least in this financial year, Sudarshan.

And sir, with respect to the Express transportation, we have seen that in the last quarter and a few quarters, there's some kind of a jump in the volumes. And with respect to even the earlier participant when we talked about Rivigo's kind of losses coming down. We did say that there is going to be some kind of pressure in the near term as far as the volume pickup is concerned, it will be more back ended. If you can throw a little color on the cost optimization because I mean, if I just run the annual cost, I mean, at around INR 100 crores, we are running at around INR 15 crores of EBITDA loss, while it has narrowed down on an annual basis, it is still above INR 60 crores. So that is the amount of cost that we need to remove. So what are the kind of optimization that we can see in that time?

So I think the things, we've -- Sudarshan, the difference between obviously the Express business and more conventional contract logistics business is just operating leverage, right? So we are running a fairly stable fleet and our focus really on the cost side has been on 2, 3 things. And the first one has been improving the utilization of the vehicles, both by doing better network operations and planning and specifically filling demand on those lanes and those routes where we have a utilization challenge. So the end of Q3, our line haul utilization -- line haul is about approximately 60% of the costs, 55% to 60% of the cost, line-haul utilization was around 65% to 70%. It's now up to around 80%, 85%. On our forward lanes, it's even higher. Sites around close to 87%, 88%. So one big lever, which has been an improvement for us, is technically, for example, if it cost INR 10 to INR 12 -- INR 10 to move a kilo, INR 5.5, INR 6 is line haul. So if we actually improve the utilization on those vehicles by 15%, you can actually see a substantial reduction. We think there's still more headroom to go there, but that's been 1 big driver, Sudarshan, for the cost optimization. The second one has been obviously pick up and delivery, which is the other big part of our cost, has been on how we pick up and deliver products from our customers, and what is the network design from a processing center down to branches and terminals. We have been working on restructuring those to drive lower pickup and delivery costs. And so that's around -- pickup and delivery costs are typically around 15% to 17% of our costs. And again, we think there's a recent entitlement of 20% to 25% improvement there. A lot of that goodness has still not been fully -- has still not come in fully. In the third quarter, what we saw a lot of goodness was actually on the line haul cost optimization. So but -- that's the second big lever. And the third lever really is around site operations themselves. Obviously, the sites are a fixed cost within a time period for us. And the big focus has been on driving more productivity and volume through the existing sites. And as we do that, we'll obviously ensure that we will get operating leverage from that. Collectively, those represent approximately, in our mind, as we stand right now, 15% to 17% potential in terms of improvement. And that's the gap we're trying to bridge over the next 2 quarters. And so if you do your math, if you bridge that 17% or INR 97 crores, it will come to around INR 15 crores, which is the current EBITDA loss we have at a quarterly level.

Sure, sir. It is Sudarshan, actually. And sir, one final question from side...

Sudarshan, I'm really sorry to interrupt, but maybe request you to rejoin the queue as there are several participants waiting their turn. [Operator Instructions] The next question is from the line of Aditya Mongia from Kotak Securities.

The first one, more detail oriented in your standalone segment. What has been the full year order inflows and what kind of growth visibility does it give you for next year?

So I think from an -- I think from the standalone of the MLL, I'm guessing your question is largely around the stand-alone MLL numbers, which is the contract logistics business. I think annual ACV for the year, consolidated INR 270 crores, largely non-Mahindra business, Aditya, and that should be -- a fairly large amount of that should be -- some amount of it has already been monetized during the year and, therefore, it's in our Q4 run rate, but a fairly large amount of that is something which will be -- which will flow through the rest of this financial year.

Sir, you said 2 1 7 as...

2 7 0.

Sorry?

2 7 0, Aditya.

2 7 0, understood. The second question that I had was more kind of getting a sense. You said with Flipkart, you are doing an integrated line-haul service. And does that mean that Flipkart is outsourcing to you their line-haul part of business? Or how does that...

Yes. We do. We right now do -- we have traditionally been doing line haul services of Flipkart earlier as well, Aditya, and we have largely been in what we call trip-based services, which is point-to-point freight operations, surface freight operations for them. Earlier this year, we actually started kind of a network operation for them. So we essentially operate a fleet, which is location-agnostic. It works across the entire Flipkart network on a dedicated basis for them, and that's an operation we launched, I think, in September last year. And August, September last year, around Independence Day. And of course, we are looking at further expanding that this year.

Understood. And then just to kind of round it up last question on my side and then I'll get inside the queue. So if you are doing 80%, 85% capacity utilization on your express business, shouldn't one be worried with the kind of losses that the business still kind of reports? I am just kind of not clear whether it's a good thing or a bad thing to still be having losses at that kind of high utilization in the largest cost element that you have?

No, I think it's good -- I think I tried to answer this when Alok asked the question earlier, but I think we are -- as I said, we are on early 80s in terms of line haul utilization. And we think there is an upside there, right, especially as some of the volume increases, we'll obviously add more schedule fleets there as well. And there is more goodness to be had there. The second big -- but the second part of a big part of it is actually on pickup and delivery costs, which we have not seen more such goodness come into our financial list. So that way, that's a big priority focus for us right now. And the third one is around site operations and physical infrastructure on the network. So not the entire part -- we believe we can improve our gross EBITDA levels around 15% over the next 6 months -- in the first 6 months of the year. Not all of that is actually coming from line haul. A substantial part of that is actually coming from site ops and pickup and delivery as well. Smaller part will actually come from line haul. A lot of the line haul improvements have already happened. So as I mentioned earlier from mid- to late 60s, they have grown to early 80s in terms of line haul utilization. And that's what we are showing partially in the improvement in the numbers as well. So obviously -- so that will not be the primary vector. The other levers -- not only the primary levers, Aditya, the other levers will be what we are focusing on right now.

The next question is from Amit Dixit from ICICI Securities.

I have 2 questions. The first one is, if I look at the contract logistics business, while revenue has grown by 15% Y-o-Y in Q4, gross margin has grown by just 2%. So just wanted to understand what is playing out there? Is it that because of higher e-commerce share we are having this kind of muted growth in gross margin and contract logistics?

So Amit, I think it's a mix of multiple things. I think firstly, we obviously have had a pickup in transportation services more than warehousing. So there has been a mix impacts on incremental volume, which we're seeing of around approximately INR 100 crores on a year-on-year basis -- INR 80 crores on a year-on-year basis, a substantial amount of that, a reasonably large amount of has been transportation services, and that's had an impact. And then the second thing, which you would have seen probably -- you might see later on in the slide deck, right, which is uploaded on the investor deck is, on the warehousing and solutions business, especially warehousing, we have had a lower year-on-year yield from that business. And as we're starting up new sites, there's typically new sites take 3 to 6 months to hit the right level of earnings in them. And in last 4 months of the year, we've had quite a few sites, which have been under construction and the launch. And we obviously carry a certain pre-operative cost at prelaunch cost for that. That should settle down in the first half of this year. I think we are launching several new sites by May this year. So there is a carry of that part. And that should -- realization of our gross margin at a pre-Ind AS level per square feet should go up by 10% to 12% through this financial year. So it's a combination of those 2 things, which I think -- which are resulting in earnings not being so accretive, but that's -- but these are all early cycle parts of a 4-, 5-year contract. So over a window of time, they will actually settle down to the right level. And I think there is a slide later on in the deck, which actually shows you the warehousing margin as well. We have it included normally for your reference.

Great. The second question is on B2B Express. Again, what we are seeing is that even in gross margin level, we have a loss of roughly INR 6 crores. While it is appreciated that we are trying to optimize the lane mix and everything, but despite being at a higher -- at a high utilization level, despite being -- despite optimizing the lane mix, we are still incurring this gross margin loss. So what kind of volume would give you breakeven at gross margin level at least in B2B Express?

Well, I think it's not a pure volume game, right, Amit, otherwise, we would not have shown the improvement we showed this quarter, right? So I think, as I said earlier on the 3 big parts of the puzzle at a pre-gross margin level, the first one is around the line haul cost itself. There, the utilization is around 80%, 85%. We believe there is still -- and a 5% to 10% improvement potential there, right, especially as new volume comes in, we'll add more lanes there or more lines there as well. The larger part, which we are really focusing on right now, is pickup and delivery, which is approximately 18% to 20% of our cost, right? And obviously, the site operations. So collectively, between the 3 of them, we think there is 15%-ish improvement potential. There is some volume growth inbuilt into that model. But we are on track to accomplish that. So I think it is important to understand that while line haul is the largest part of our cost, it's not the only part of our cost. There's goodness to be derived in other parts of our cost structure as well. And while we attack line haul first for the obvious reasons that is the largest part of our cost structure. There is work going in other parts of that cost elements as well. And that's what we think will flow into the numbers more strongly in the next 2 quarters.

So basically, while we have guided that by Q2 FY '25, we will be EBITDA positive or EBITDA neutral in B2B, is it fair to assume that by Q1 FY '25 when at least you would be at the breakeven level on the gross margin front?

Yes. I think that's a pretty good assumption, Amit. As you know, I don't give guidance, but we -- that's a good assumption.

The next question is from the line of Yash from ithought.

Most of my questions answered, but if you could just help what are the key measures you, as a company, would be tracking, your targets of breaking even right in the contract in the express business? And secondly, you mentioned that the realizations are lower because of new warehouse operations. So broadly, where do you see the realizations stabling? And that will lead to an improvement in the EBITDA margins for the stand-alone business, am I right for that?

Yes, sure. So let me address the second part of the question first because -- just so we don't really talk about express the whole times, right? So I think on the contract logistics part, I think earnings, as I said, with the 2 -- the 3 big drivers for us. One is the volume, volume is very important. As I mentioned, I think when Aditya asked the question, we didn't have -- we have had an annual contract volume gain of INR 270 crores this year. More than half of that is yet to be monetized. And so we will see a flow-through of the volume through the rest of this financial year. The second part is obviously cost control in terms of our operating costs across the sites. A lot of our business is longer-term contracts, and therefore, managing cartridges and costs is absolutely critical. And the third one is really start-ups applications. As a growth -- as we're adding up new sites every quarter, we're doing the start-up as well, managing start-up window and shortening the start-up window is extremely critical. Those are 3 big elements, which are drivers for earnings growth. So to your point, Amit, I think with the absence of the onetime charges and some of these things flown in, we feel positive about the runway in terms of earnings growth in the contract logistics business. We obviously have to execute that well, but those are the metrics we track internally as well and really comes down to being ruthless in terms of how well we execute it day in and day out. On the express side of the business, I think, for us, the important thing is to get the playbook right. I think as you've seen, we've been successful with acquisitions, such as what we've done with Meru or what we've even done with Whizzard to become fully subsidiary only now, right, or even with the LORDS business, the freight forwarding business, in each of them our focus initially has been not to just grow, but actually get the playbook right so we now then have a scalable business. I think, therefore, while there is an absence definitely on volume growth in Express business, I think, getting the cost structure right is a very important thing as well. So the last 3 months or 4 months, we have been really aggressively pursuing rightsizing the cost structure. That will remain a focus over the next 6 months or so. And so our operating metrics are really around the line haul costs -- getting the line-haul costs, right, getting obviously a pick up and every cost elements right and ensuring the service levels remain extremely high through the network, both in terms of PAT or customer promise dates as well as in terms of debts, which is damages or excess or short shipments. So those are things we're really focused on. Obviously, volume growth is something, which we all focus on. So I want to kind of the label obvious point, but the real metrics, which we're really focused on, is getting the cost side right. Our endeavor is not just to make basically EBITDA breakeven by the end of the first half, but actually build a scalable playbook between customer prominence and cost structures and network efficiency, which we then can scale up consistently over a period of time. And that's actually when we'll start seeing...

And if we bar the onetime of new warehouse operations, what would be the gross margin -- warehousing gross margin yield, which is, I think, INR 18, which you have mentioned in the presentation, if we remove those new warehousing opening spot, what's...

Around INR 20. I think what we have mentioned there is INR 18 for the quarter. These are pre-Ind AS levels. I think, Aditya, asked this question last quarter, so we added that footnote. But these are -- but around INR 18 per square feet, I think, it will probably be around INR 20.

Right. Still that would be down on a year-on-year basis, right?

Yes. Q4 last year, yes, it's still down. But I think we've said this earlier as well. My own sense is that we look at warehousing margins on a full year basis because the business is going to be reported on a quarter-on-quarter basis for your convenience. But ultimately, there are quarters when we are, for example, last year in Q4, we had peak in Q3, and we had some run off of benefits flowing through in Q4. So those got accounted in Q4 and, therefore, we saw a higher number in Q4. But those are periodic numbers. I think it will stabilize very honestly at around INR 20. I don't see it going to INR 22 this year. But I think if we go to INR 20 and if we get a 2% improvement in gross margin on roughly INR 1,000 crore business, we think that will actually be a big earnings.

The next question is from the line of Sumit Kishore from Axis Capital.

My first question is on last mile delivery, where we got the first full quarter benefit of results. So from this level organically, how does the business grow for the next 1 year, if you could speak about that? And with the certain gross margin this business has done in this quarter, what is the outlook going forward for the last mile delivery?

So I think, obviously, we've seen the full benefit of the last mile delivery business this quarter. And as you know, Sumit, as I mentioned earlier, roughly half our business is still within MLL, and the other half of it is actually is in the Whizzard business. I think as you look forward, I think the 2 big drivers from a margin perspective, obviously, your gross margins improved in Q4 compared to last year. And I think on a full year basis as well we have seen a reasonably strong improvements in gross margins, but margins are still low. As you can see, the gross margin is around 5%, 5.5%. As you look forward, I think this year, we are expecting F '24, '25 to be a year of strong growth. When I say strong growth, I think, as you know, we've kind of -- we're -- our kind of a broad expectation is a mid-teen growth across our entire business. So I do expect last mile will outstrip that growth pattern, right, given where we are in terms of order intake and network expansions in that space. Larger focus there, obviously, is on gross margins. I think we are around 5% today. Over a period of time, we want to take gross margins up to 8%. That's going to come from 2 or 3 things, increased purchasing power. As you know, we are combining this business in terms of buying ice and ice fleets and so on from partners. So that's 1 big lever. Second one is consolidating operations, co-locating operations more consistently, right? We have multiple sites across these businesses, which are within a few kilometers of each other. And we are looking at saying, how do we get some network and infrastructure leverage. And the third one is driving better productivity. With Whizzard, we get a very strong technology platform, which allows us to manage workforce productivity a lot more aggressively. That work has already started already right now, Sumit, since after we completed the second tranche and has become a majority subsidiary. So over a period of time, I think these 3 things will actually help us to grow margin as well. I'm not -- I won't specifically comment on how much of that will happen in this fiscal. But we have, in the past, told you all that our broad expectation is that our last mile delivery business should -- if we're 8% gross margin and we are right around 4.5%, 5% now, so we have the gap to bridge. The Whizzard business reported on 6.5% gross margin for the quarter. So it's kind of a little bit ahead of the MLL part of the last mile delivery business. And so there's some learning and synergies will flow through as we have now completed the majority part of the acquisition. But focus for this year, Sumit, is obviously top line growth. We expect high teens or even probably early 20 percentage kind of growth in the business, and the substantial focus is on getting -- crossing a large part of that journey towards 8% to 10% in terms of gross margin.

Very clear. My second question, just to understand how with 3.5% quarter-on-quarter volume growth line haul utilization could be improved from early 60s to 80%, 85%. So is that because you have brought the fleet size down? Or I mean, how does it -- how does the utilization improve so much with the 3.5% volume growth?

Great question, Sumit, and I'm glad you asked it because I think it's a high -- it's a party trick in the puzzle, isn't it? So I think the key thing, of course, has just been our entire work on redesigning the network. So really, in a plain vanilla, where you would probably look at this saying that volume went up by 3.5%, so utilization should go up by 3.5%. Let's just assume that we are running the network exactly the same way. A lot of work has gone in terms of redesigning network, changing network, vehicle frequency. So we are actually running fewer kilometers now on load than we did earlier, right? And that's actually part of what's driven that improvement across the entire network. Obviously, we've kind of at the right points of network, cut down some of our schedules as well. So instead of, let's say, running daily in all some locations we have actually driven in -- we've actually moved in and taken some cutoffs in between or changed vehicle frequencies, we redesigned the routine path of the network. So those actually have added a fair amount of that improvement in terms of utilization. Probably 7% to 8% of the improvement in utilization has come from that. 3.5% to 4% has come from pure volume. But inside that 3.5% of volume growth, we have also specifically churned some customers on lanes, which are completely unprofitable and added customers into lanes, which were very profitable. So there are some services, for example, I won't give specific PIN code, but let's say we are running at 25%, 30% utilization on some PIN codes, we've actually -- or some lanes, we've actually reduced volumes in those lanes and actually brought in volume to the other lanes where we can bring in capacity. So those are 3 things that have actually added capacity utilization. Great question, Sumit. I'm glad you asked it because that's been a big part of our focus in the business, has been reorganizing the network and that's why it took time to do it as well. If it was just a pure volume game, we'd have probably done it much earlier.

Sure. That is some of my understanding. For the next 2 quarters, if you manage again, 3.5% volume growth quarter-on-quarter along with the cost-saving initiatives, that would be more than enough to get you to EBITDA breakeven for the B2B Express business by Q2 of FY '25.

Sumit, you're obviously paraphrasing. History is not a good indicator of the future, always. So I will not -- I'll resist the temptation of -- I'm going to pass on that question. I think what we will -- what I can tell you is that we are confident of hitting EBITDA breakeven by Q2.

The next question is from the line of Harshal Mehta from PL Capital.

My question is regarding B2C. So actually, earlier understanding what I had is, we need to scale up to like 35,000 run rate monthly to achieve EBITDA breakeven. But now with this current cost optimization, could it be like achieved with even like 30,000 volume monthly?

Harshal, I think what we had said earlier on is that we need to get volume to grow by around 30% to be able to get to EBITDA breakeven. I think, obviously, as all of you have noted, we have seen some softness in the last 2 quarters, especially in the quarter and last quarter-and-a-half on the Express business. And therefore, our emerging focus has been on trying to drive better cost optimization. I think the question we've always been asked is everything -- if you run the business as it is right now and how much more volume do you need to have breakeven? The answer to that obviously was 30%, but that's not the only way to breakeven, right? The answer is a combination of both. And so what we have been focusing on is driving volume growth and driving the right volume growth first. And that's why I skipped on answering Sumit's questions. I think that's [indiscernible] because we will need volume growth. At some point in this journey, volume growth will be important. But right now, I think there's more to be accomplished from a cost improvement perspective. It is likely that if we can -- as we hold this cost improvement, we may not need that 30% growth in volume to hit EBITDA breakeven. We're focused on that because ultimately the game doesn't stop at making EBITDA breakeven. There obviously is a bit of a sticker shock issue right now given the carry it has on our earnings. But we've acquired and we're building the business to become much larger and be more impactful than just being EBITDA breakeven. So the volume focus remains pretty strong. It's just what getting the right volume first and then focusing on overall volume.

And sir, how much would be the white space in warehouse currently?

3%.

Okay. And sir, CapEx for next year?

Let me correct myself. I stand corrected, it's on 4%.

Sir, CapEx for next year?

Similar to this year. Sorry, similar to last year.

The next question is from Ketan Athavale from RoboCapital.

In our PPT, we have mentioned, we will reach INR 10,000 crores revenue by FY '26. So I wanted to know what will be the drivers for the sales? And if you can give the margin expectation for next 2 years, EBITDA margin?

I'll answer the first question first, Ketan. We don't give guidance on annualized margins. So I unfortunately have to give pass on that question. I think on margin, what we have said is, over the cycle, we expect to be around 2.5% to 3% on the contract logistics business, which is MLL stand-alone to a large part, and we expect the other businesses, which is a network businesses to be around 3% to 4%. That goal still remains. I won't timestamp that goal to a specific reference. In terms of revenue growth, I think, our focus really has been on 2 things. And I think one has to split the business in the 3 parts as you look at our revenue. So the first one is our contract logistics business, which right now is running around INR 4,500 crores. We expect that to grow around 15% to 17% over the next 3 years. This year was a particularly challenging year as we saw a slowdown across most of our end markets. But as I said, we are getting back to that growth point now and we are hoping that we can sustain that growth through market growth as well as more penetration by us. So that's one part of the growth, which probably gets us to around INR 6,000 crores of net range. The second part of it is the network services business, which is kind of all subscale. Now the forwarding business had made progress. It's kind of moved a bit backwards because of global macros. The B2B express business is in a turnaround phase and the last mile delivery business, of course, is in a scale-up phase. So those 3 businesses, we do expect over the next 3 years or a little bit more than 3 years will scale up to INR 750 crores to INR 800 crores each, right? And that is not a very significant growth. In percentage, it looks large, but in terms of the market, which we operate in and the value propositions we have, if we develop the right offerings, we believe we are very confident that we can actually drive that growth. For example, the Express business today, even at the INR 800 crores will probably be around 7 to 8 lakh tons, which is not a very large number in the context of overall industry. It will still probably be around 6% -- 5% to 6% market share. So these are not exceptional moves. There are big moves, but they're not -- they're not something which we think are in complete stretch. And so that's the second part. So between 6, 6.5 and 2.5, we'll get to around INR 9,000 crores and obviously, the mobility business is right now running at a run rate of around INR 350 crores -- INR 328 crores actually was the reported number for the year just ended. And we are sitting at around INR 350 crores, INR 360 crores of run rate. And so that's something which we obviously are a bit dependent on larger macros on that because return on to work, et cetera, has to stabilize. So there's a little bit of -- I would say that's the one which we are -- is a bit hard one to timestamp -- of the hardest one to timestamp. But those are the buckets in terms of driving our growth. The way we are organized inside the company, each of these businesses has individual business leaders. They have specific business plans for each of them. And therefore, while they're individually focused on driving growth in the business, and that's what they are accountable for. But we focus on driving the synergy across the business, that's a multiplier for us.

Got it. And what will be -- will the depreciation stabilize at current run rate? Or do we expect that to increase?

I think there should be moderate increase. As I said just now, Ketan, I think, the earlier person asked the question, we do expect to add CapEx in the same line as what we are doing now and that's something, which I think will continue. I think on the warehousing side, you've seen our deals at the pre-Ind AS level around 12.5%, 13%. So we do conclude to add warehousing over a period of time. As we add the warehousing, you will see an RTU asset line impact -- impact on the asset on the depreciation line because those assets as in class are reported as RTU assets, right? Or under the depreciation and interest cost they carry, right? But those are the 2 big things, which should actually move. We don't see a substantial other shift from an organic basis across our business.

[Operator Instructions] We take the next question from Nitin Gandhi from INOQUEST Advisors.

Yes. Just a small confirmation, despite businesses, which are making losses at PAT level, we expect them to be breakeven or PAT positive in this fiscal?

I'm sorry, can you repeat that question, I couldn't get it.

The 5 businesses, that is Mobility, Express, 2x2, V-Link and Whizzard, which are in losses, will they be breakeven or PAT positive this year?

Yes, Whizzard will be -- I think across those businesses, I think Whizzard, the large business will be PAT positive. The Mobility business is PAT positive on a run rate basis, will remain -- will be profitable for the full year as it was this year as well. And 2x2 and V-Link also, we expect to be profitable for the year. Both of -- all of them should show profit improvement this year. I think the challenge will still remain the Express business. I think we are expecting to be EBITDA positive by the second half -- by the second quarter of the year. Between the EBITDA and PBT, we have approximately INR 30 crores, INR 35 crores kind of impact between the interest on the long-term debt, the write-off of the fixed assets, the depreciation of some of these assets, right? And so those will probably continue over a period of time, till we get volume to recover that. But the rest of the businesses, we expect, Nitin, should be profitable and should accelerate the profitability in the future.

The next question is from Anshul Agrawal from Emkay.

Ram, what could be the sustainable gross or EBITDA margins for the Express business once our cost optimizations are completed?

So I think there are a couple of things. I think cost optimization is really the journey to EBITDA positivity, right? Obviously, it's the entire volume, which has to pick up after that. I think what we have picked the business at from a longer-term perspective is a 4% PAT level, Anshul, and we are confident that's actually very possible. Bellwethers in the industry are actually above that number, but they're also at higher volume points. So we do feel pretty good about our ability to hit that. I won't give you line-item breakups because it could have complicated the story. As I said, the story is a combination of volume and cost optimization. And since it's an infrastructure business, as we put the infra before we actually sell it, there is an interplay between routine cost and volume as well. But when it settles down and in our business plan for both the acquisition and the business, which I've shared fairly openly with all of the investors in the past, we expect that the business to be at around 4% PAT. And as we start we feel pretty confident that we'll get there. We are a couple of quarters behind because we are in integration mind, but we are re-pivoting back on that path.

Sure. Helpful. Just a follow-up on that. So I understand that the B2B Express industry is going through a cyclical downturn, but when do we expect to grow probably at the industry level? Or would it be, say, in FY '26 or beyond?

No, I think we'll start seeing that kind of higher growth level starting from the second half of this year itself. I think, Anshul, what we must understand is, as I said, we have been -- even though we have signed up new logos, we have been selective on adding lane-wise volumes because we intend to optimize it for the right volume. It's not that volume is not available. In all fairness, we are 3%, 3.5% market share. So it's not like we have a really large market share. As you also know from a synergy perspective, we have a lot of customers in contract logistics, forwarding, et cetera, who also use express. So our sales strategy is also driven by the multiplier we get from inside. We are being very complementary with other businesses as well. So volume will start coming back I think in a more material way in the second half of the year. And I think our volume growth, we are not -- given our current market share, I think our volume growth is not a function necessary of the overall industry. I believe we can actually grow. If it's a right volume, we get the right volume, we can grow even if the market is not growing because we are not -- we have a great offering. We have got a significant market share today and we have great synergy with the rest of our portfolio.

Due to time constraints, we'll be able to take one last question. We take the last question from the line of Rohit Suresh from Samatva Investments.

Sir, my first question would be, could you give some clarity on which sectors you're actually seeing good demand and which sectors are actually struggling currently? And what's your outlook for the year going ahead?

I think across the portfolio, I think we have -- I think I already gave outlook. We are expecting an early teen kind of growth rate across the entire portfolio. Like different parts of our businesses are in a slightly different position, Rohit. As I said, in the contract logistics business more consolidation, whereas the other businesses are in some point of scale up. So they should probably -- they should obviously intend to grow faster. But overall across the portfolio in early teen number, I think where we are seeing volume growth coming from, obviously, automotive is still stable and strong, right? We do expect to see growth in the FMCG and durable business, which remains positive for us. A lot of business has come up for rebuild and tendering, and e-commerce is kind of -- is coming back specifically in specific niches. So those are 3 big drivers, I think, for growth from an end market perspective. And those are the ones which we think will continue to be over the rest of the year as well. I think the one -- I guess, the one call out or watch out is just really ag. We have -- we believe right now that we have seen much of that softness play out already. Q4 volumes were softer adjusting for some of those lead indicators. There will be seasonal variations in ag, which are always there because we -- because of farm business, that farm sector does have seasonality, but that's the one call out in terms of specific softness, which is there, which continues to be there. I think the other call out I will make is that the pricing environment is actually pretty competitive, right, as we have got past the COVID situation, I think there is a lot more tightness in pricing. And that kind of covers all our segments. And therefore, the discipline on pricing and the discipline on execution remains one fly on the wall to watch for all the time.

Got it. Got it, sir. So just one last question would be on the fuel cost. So how easily are we able to pass on the fuel costs right now? Are you facing any challenges on that?

Again, different parts of our business, I'd say, Rohit, the Express business, we obviously run. We don't -- we are not running it for others, we're running it for ourselves. And we have -- we do get the benefit of the cost of it. Last quarter, fuel prices did come down, both for diesel and I think ATF actually came down as well, but we did see some creep of that benefit, but not very substantial because they were not very significant moments. On the contract processes business, we largely run distribution and line haul, almost all our customer contracts are fuel indexed. So we don't carry the exposure of price increases of inflation. We pass on most of the benefits of reducing prices to our customers as well. The model is fairly stable in that sense, if you're asking about the model. The model is fairly stable. There are a little bit of windows there because there are always price triggers, triggers which happen, but those are also passed back to our customers, our supply base in the same way and, therefore, we're not exposed to.

That was the last question. I would now like to hand the conference back to the management team for closing comments.

All right. Thank you, everyone. I hope I've been able to answer all your questions satisfactorily. However, if you need any further clarifications or you want to know more about the company, please do contact our Investor Relations team at MLL or at SGA who are our Investor Relations advisers. Thank you for your continued interest in the business and in our company, and thank you for joining us this afternoon.

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.