MAHLOG - Mahindra Logistics Limited Share Price

Mahindra Logistics Limited's management outlook for Q2 FY '26 indicates a transformative phase focusing on operational excellence, margin growth, and effective cost management. Key forward-looking points include:

1. White Space Reduction: Achieved a reduction of over 20% in warehousing white space in the last quarter, moving towards an ambitious target to decrease it by 95% by September 2026. This is aimed at optimizing costs and improving operational efficiency.

2. Express Business Turnaround: For the first time, the Express Logistics division has reported gross margin positivity, with a gross margin of 0.2% compared to -5.2% in Q2 FY25. This reflects significant improvements in operational discipline and cost efficiency, alongside an equity infusion of Rs.50 crores to drive toward EBITDA positivity.

3. Cost Optimization: A sharp focus on reducing rental costs and maintaining control over operational expenses is prioritized. The management plans to eliminate adverse contracts affecting profitability as part of their broader cost management strategy.

4. Revenue Growth: Consolidated revenue increased by 11% year-on-year to Rs.1,685 crores, heavily driven by e-commerce and the Mahindra Auto and Farm segments. The warehousing segment alone grew by approximately 20% year-on-year.

5. Financial Health Improvement: Post rights issue of Rs.749 crores, the company reduced consolidated debt from Rs.601 crores to Rs.73 crores, which is expected to yield annual interest savings between Rs.40 crores to Rs.45 crores.

6. Sticker Metrics: EBITDA for the quarter stood at Rs.85.1 crores, compared to Rs.66.4 crores in Q2 FY25. Despite a PAT loss of Rs.10.4 crores, this shows slight improvement against the same quarter last year.

7. Continued Expansion Plans: New projects across manufacturing and e-commerce have been operationalized, including a 300,000 square foot facility in Nashik, and strategy for ongoing growth in NCR through the Alyte Prive mobility service.

8. Industry Outlook: Management believes that despite global challenges, increased domestic resilience combined with festive demand is positive for the logistics sector. They anticipate continued growth driven by infrastructure enhancements and a rapidly evolving e-commerce landscape.

The management's emphasis on strengthening operational capabilities and enhancing customer relationships positions Mahindra Logistics for sustainable growth and profitability in the forthcoming quarters.

Here are the major questions asked during the Q&A section of the Mahindra Logistics Limited earnings call, along with the detailed answers provided by the management:

Question from Jainam Shah: "The provision created for the INR4.8 crores in this quarter, is there any amount remaining or have we just provided it fully in this quarter only?"

Isha Dalal's Answer: "We assessed the recoverability based on our client's status in bankruptcy filings. We have made a comprehensive provision but not the full amount yet, as we are still evaluating potential recoveries."

Question from Jainam Shah: "What kind of targets do we have to make the Express business EBITDA positive and then PAT positive?"

Hemant Sikka's Answer: "We've become gross margin positive for the first time; our next target is to achieve EBITDA positivity. We have various strategies in action, including optimizing customer mixes to enhance profitability as we pursue this goal."

Question from Jainam Shah: "Our rentals have been increasing while revenues from contract logistics have grown 10-12%. Why hasn't rental decreased significantly?"

Hemant Sikka's Answer: "We are making progress in white space reduction and as we cut 20% of it this quarter, rental costs are aligned. However, new facilities, like our 3 lakh square feet in Nashik, influence rental expenses despite shrinking white space."

Question from Jainam Shah: "What is the status of our warehousing realization per square foot? Is it affected by white space reduction?"

Hemant Sikka's Answer: "We won't disclose specific numbers to maintain competitive advantage, but our white space reduction did not lower revenue levels as we've actively secured new clients for those spaces."

Question from Jinesh Joshi: "Why haven't we knocked off all debt completely despite the rights issue proceeds?"

Isha Dalal's Answer: "The debt profile includes long-term debt from subsidiaries meant for vehicle acquisitions, which was not repaid through the rights issue; working capital debts may also fluctuate based on seasonal needs."

Question from Achal: "Is there any plan for divesting any businesses, considering the losses in the Express business?"

Hemant Sikka's Answer: "We believe all branches are essential as they currently contribute to top line and bottom line growth. We're focused on operational improvements and profitability across all verticals without plans for divestiture."

Question from Achal: "Could you quantify any impact from the earlier festival dates on our business?"

Hemant Sikka's Answer: "While our preparation and hiring costs came early due to GST disruptions, the actual peak activity aligned with our ramp-up plans. Thus, quantifying festival impacts is complex as our busy season precedes actual festivals."

Question from Krupashankar Nj: "Has the increase in lease expenses been due to the underlying rental cost escalation, despite reduced space?"

Isha Dalal's Answer: "We added several new facilities with Ind AS 116 accounting leading to higher lease expenses. This increase is a result of long-term leases with escalation clauses, not due to a mix in rental properties."

Question from Ankita Shah: "What explains the sharp jump in Right-Of-Use (ROU) assets compared to space additions?"

Isha Dalal's Answer: "The ROU asset increase corresponds with large sites added throughout the year as part of our network expansion. This surge aligns with our accounting policies and reflects no irregularity."

These answers summarize the significant concerns and organizational strategies discussed during the earnings call.