Ladies and gentlemen, good day, and welcome to the Q4 and FY22 earnings conference call of Mahindra Logistics Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Now I hand the conference over to Mr. Shogun Jain from SJIR. Thank you, and over to you, sir.
Thank you, Steven. Good evening, everyone, and thank you for joining us on the Mahindra Logistics Limited Q4 and FY22 earnings conference call. We have with us Mr. Rampraveen Swaminathan, MD & 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 exchange. 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 the same has been included in the earnings presentation shared with you earlier. I would now like to invite Ram, MD & CEO of Mahindra Logistics Limited, to give his opening remarks.
Good afternoon, everyone. Steven, I hope everybody can hear me.
Yes, sir. The audio is good.
Okay, good. Good afternoon, everyone. Thank you, Shobhuj. I hope all of you and your loved ones and your colleagues are keeping well and safe. I hope you all had a chance to review our results and presentation, which are available on the stock exchanges and our company website. I'll start my remarks by providing a quick update on our end markets, our financial performance, some key margin improvement initiatives and other matters of significance for the quarter. Just broadly in terms of markets, obviously the supply chain and logistics sector have faced multiple challenges throughout the year. Making supply chains more robust, driving end-to-end visibility, ensuring data security and real-time product traceability, and improving downward industry collaboration are ways to prepare for the future.
Companies like us are beginning to emphasize technology to assist in determining the landed costs, enabling information sharing among suppliers and through the supply chain, assisting organizations in preparing for optimum supply chain performance. As Omicron variants were feared to be causing widespread economic damage at the start of the quarter, in the month of January, there was an increase in number of cases and restrictions at local and state levels across the country. However, the case counts have begun to decline in mid-February, allowing the economy to recover more quickly. Most states have currently eliminated all COVID-led restrictions by the end of March, resulting in an increase in economic activity. The increased focus on exports, rise in wages and consumer spending across all categories and the wedding season has supported the overall quarter's trading. Enterprise customers have started implementing return to work programs.
There have been differences in some areas on account of wave three, which has impacted demand. Wave three has resulted in sharp drop in travel for an intermittent period in the quarter. However, we are seeing improving situation post that as traffic is improving and we have seen shipment levels improving 4%-5% week-on-week through the month of March and early April. Let me now move on to more sector-specific updates in terms of sectors relevant to the company, and let me begin with auto. The auto sector continues to witness headwinds. Passenger vehicles continues to see high demand and long waiting periods as the semiconductor availability remains a challenge, even though supply chain suppliers improved marginally.
Geopolitical issues have further thinned supplies and vehicle availability and vehicle production, likely making the waiting period even longer. The two-wheeler segment is currently underperforming, largely due to rural stress, and it has been further dampened by an increase in vehicle ownership cost coupled with the rise in fuel costs. Due to COVID issues, closure of education institutions and the work from home trend, three-wheeler market sizes have also declined. On the other hand, commercial vehicle has started seeing an upswing due to a surge in demand for higher freight rates. The industry is witnessing headwinds due to higher fuel prices and commodity prices, you know, and demand for CVs and two-wheelers, like, are seeing some volatility due to the recent movement in fuel prices.
While the overall volumes have been impacted, stronger growth in demand from our major customers is driving positive growth for us during the quarter from auto markets. Moving to farm and agro. Farm and agro has been a growth driver for us in the last two years, driven by better monsoon, increased mechanization and the background of government support programs, MSP changes and reverse migration. Recently, however, we all are witness to a slowdown in the rural sector. Inconsistent monsoons and weaker sentiment has seen extended slowdown beyond the usual season effect. We forecast this to continue through the larger part of the year. Our business has been impacted on account of this, especially on outbound of tractors, which is a key segment for us. E-commerce. E-commerce growth remains steady, though lower than we estimated.
Given the strong capacity increases, you know, a lot of capacity increases were done post the wave one of the COVID pandemic, and capacity was added in the first and mid mile, and these capacities have still not been fully utilized. Consequently, we have seen lower level of activity in terms of network expansion by the large established players. At the same time, newer participants and D2C brands are adding capacity to their network. The large interest in quick commerce is resulting in significant capacity additions as players in the segment are trying to expand reach and service levels with an expanding selection of products. While mid mile and first mile expansion was slow, the volume growth continues to drive growth in last mile delivery. Moving on to our consumer markets, durables, e-commerce, pharma and so on.
You know, obviously due to the Omicron-led uncertainties, the consumer durable sector had underperformed in the first half of Q4 FY 2022. However, as the virus impact faded over the period, the industry started gaining traction. In addition to the anticipated above normal temperature levels and heatwaves across the country during the upcoming season, we have seen increased dealer stocking, especially on temperature controlled products. Commodity prices remain high, and companies have been unable to completely pass on price increases with competition and softer, inconsistent demand environments. However, the opening of commercial institutions and operations has resulted in demand recovery, especially in the air conditioning space. Other categories such as dishwashers, laptops, mobile phones, microwaves continue to see steady growth. The quarter has seen an unprecedented level of inflation and lower disposable income, which has impacted volumes.
Both rural and urban demand among our clients are remaining muted, really impacting volume across all categories. You know, all major input commodities have been hit by inflation on a sequential basis given some geopolitical issues as well. We are seeing the impact of some of this across our customer base, but that has been offset by the larger amount of footfall and growth and shift from e-commerce or online channels to more physical channels during the quarter. Moving on to enterprise mobility. Due to the continuation of work from home policies and additional restrictions placed by state and local government, the segment had a subdued or weak performance during the quarter. This was especially so in the month of January.
However, since mid-February when restrictions started easing up, the demand scenario has been improving and we have started seeing traction. However, you know, as we continue to see volatility in this space, I think many companies are pushing back return to work. Most of our clients are actually on partial return to work and currently are forecasting a full recovery in H2 of the year. Let me now comment on our consolidated financial performance for the quarter ended March 31, 2022. Revenue for Q4 FY22 increased by 10% to INR 1,073 crores as compared to the corresponding quarter in the previous year. Revenue from supply chain segment contributed 97% and the enterprise mobility segment contributed 3% with a year-on-year decline in the mobility segment.
Gross margin for Q4 FY 2022 stood at 10%, compared to 9.7% in FY 2021, an increase of 22 basis points. EBITDA for the quarter stood at INR 61 crores, up 20%, from INR 51 crores in the corresponding quarter last year. PBT was down by 13% from INR 16 crores to INR 14 crores, and correspondingly PAT was down 11% to INR 11 crores for the quarter. Proportion of revenue from the Mahindra Group comprised 50% for the quarter, just gone by. Let me talk a little bit more about segment performance. Revenue from supply chain increased from INR 938 crores to INR 1,045 crores, while the enterprise mobility segment revenues declined by 23% to INR 27 crores for the quarter.
The HCM segment has seen an uptick due to growing demand in auto, e-commerce and consumer vertical, you know, and continued growth in uptake for rail business given global cross-border logistics challenges. Our revenue from Mahindra Group supply chain business increased from INR 500 crores in Q4 FY 2021 to INR 534.6 crores, in the same quarter, in FY 2022, up 36%. Our non-M&M HCM businesses grew from INR 438 crores in Q4 FY 2021 to INR 511 crores in Q4 FY 2022. Whereas we saw a significant SCM recovery in Q4 compared to Q3 FY 2022. Growth in non-auto businesses was stronger at close to 25% on a year-on-year basis.
Our warehousing and value-added services for the non-M&M HCM businesses has grown from INR 135.2 crores in Q4 FY 2021 to INR 126.8 crores in Q4 FY 2022, registering a growth of 53%. Our share of warehousing and value-added services in the non-M&M HCM business has reached 40% in Q4 FY 2022 compared to 31% in the corresponding quarter for the prior year. During the quarter, our focus has been on margin improvements, and I'll talk about it a little bit more later. We saw positive traction on various initiatives. On the flip side, margins were impacted in the quarter by three factors.
A slowdown in farm volumes, decline in the gross margin in mobility business due to base effect, and lower earnings in our 2x2's joint venture, which owns and provides car carrier services for the auto segment. We see that we expect that these things will kind of recover as we see volume growth in farm and mobility recovery in the coming quarters. For FY 2022, the board of directors have recommended dividend of 20% that is INR 2 per share, subject to the approval of shareholders at the ensuing AGM. Let me also comment on a few specific areas before I open up for some fuller comments. I'll begin with margin improvement. Last quarter, we had outlined some areas which have impacted margins.
During the quarter, we implemented our recovery program around manpower cost inflation and productivity, and this has been utilized since then on multiple levels. The Bajaj project implementation scheduled to be completed fully through Q1 of FY 2023. It will all be on track. There is a marginal delay on account of the pandemic in our optimization programs, but we expect to be pretty much on track on program. During the current quarter, we also announced the acquisition of ZipZap Logistics, a last mile services provider under the brand Whizzard. Whizzard has a strong presence in tier two and tier three cities, e-commerce and multi micro-fulfillment capabilities, and a full technology stack which will benefit our existing last mile delivery business and the EDel electric vehicle business.
Whizzard have access to over 10,000 pin codes, presence in more than 600+ tier two, tier three and tier four towns. 25+ metro and cities, and process daily orders of close to 4 lakh packages, and it has more than 200 micro distribution centers. We see this as a very strong synergistic fit as we try to bring new capabilities to serve a growing last mile delivery space, and a combination of the premium capabilities we think will drive better synergy, stronger client acquisition, and increased growth. Other acquisitions we announced in FY 2022 was the acquisition of Meru. The acquisition is an important part of our freight business and into airport cargo handling and on-ground services.
We believe that the combined expertise of both our businesses will allow us to provide B2C and B2B customers with a better and wider range of services that will deliver on MLL's promise of safety, customer satisfaction, and long-term sustainability. Along with acquisition, we will get access to more than 300 electric vehicles, which is an important component to our fleet and our broader objective of electrifying the last mile. Meru ended FY 2022 with an annual loss of approximately INR 20 crore. In the month of March, the company's performance had been improving through the year and, in March FY 2022, the company achieved EBITDA breakeven.
With full opening of the economy and airport travel, we expect to see definite increase in business from Meru, and therefore much lower levels of losses in the company in the next fiscal year. We also expect synergies and technology synergies between the Alyte and Meru businesses, which would set up for a stronger position in the mobility sector overall. We also continue to make strong progress on sustainability. In the year gone by, we've met our improvement targets based on the SBTi metrics which we follow. In the year gone by, we planted 40,000 trees. Our EDel business has now completed over 7 million clean kilometers. In March FY 2023, we launched a net zero warehousing PGS in Pune, which is energy neutral.
I think going forward, I think we remain focused on the growth drivers which I talked about earlier. Our core 3PL business is really focused on providing integrated solutions for customers, which delivers a wide portfolio of services. We are equally focused on growing our network services transportation offerings, including freight forwarding express. This is B2B last mile delivery in e-cargo. You know, through the year, we expect to continue to drive technology investments and to improve scalability in our business, as we look at growing these segments during the year ahead of us. With that, I will open the floor for questions and answers.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sumit Kishore from Axis Capital. Please go ahead.
Good evening, Ram. Good to see the improvement in margins on a sequential basis in the fourth quarter. I have three questions. The first one is, could you please break up the SCL business, top line, into core 3PL and network services for FY 2022? And also for FY 2022, if you could break up network services into freight forwarding, B2B express and last mile delivery. You know, what growth has each of these seen in FY 2022, and what is the outlook?
I would, Sumit, I'm sorry I couldn't fully catch the question, but I think I'm gonna answer it directly for sure, right. I think our connected, you know, services business and for everyone's benefit, let me just encapsulate that freight forwarding B2B express, last mile delivery, and our electric vehicle cargo business. We closed the year at maybe INR 850 crores.
Which would approximately be close to 22% of our overall supply chain revenues, right? Obviously, the freight forwarding business has been the largest part of that, supplemented by the other segments. That excludes any impact of Whizzard because obviously there's IT stack logic for the acquisition, will be financially included in this as well. In terms of moving forward outlook, I think that's the other part of the question, right, Sumit. I think our growth, as we've said this earlier, we do expect strong growth, right, in these segments. We have been obviously investing in building our own capability in these businesses, but have also been looking at inorganic opportunities to further accelerate growth, right?
If you look at the forwarding business, I think in the last 2-3 years, we completed acquisition of partner shares, JV partner shares in the business. We have been able to drive strong growth at revenue and margin levels, driving synergy. Similarly, with the acquisition of Whizzard, I think we're significantly adding to our capabilities in last mile delivery and further positioning for strong growth. In the electric vehicle cargo, we are close to 700 vehicles now. We remain committed to our long-term vision of around 3,000 vehicles, a combination of both three-wheeler and four-wheeler over the next 2-3 years, right? Obviously on B2B express, we continue to see a 30-35% annualized growth.
We did have slightly slower growth in Q4 of 2022, right, given some of the pandemic kind of trends which we saw, and there were some disruptions in operations. We expect to sustain that kind of growth as we go forward as well.
Got it. Out of the INR 860 crore, how much was freight forwarding in FY 2022?
I think freight forwarding was around INR 460 crores. If I recall accurately. Yeah. It's roughly INR 460 crores in the freight forwarding business. Similarly, the rest of it kind of split halfway between last mile delivery and AIF , and our express business.
Got it. My second question is, you know, could you quantify the drag of Bajaj Electricals startup costs on Q4 margins? Directionally, you know, is that impact going to be higher or lower in Q1 FY 2023?
I think it's hard to put one number out and say drag, Sumit. Clearly, I think if you look at our warehousing margins, I think they have been lower, right? Our warehousing solution margins have been lower because of startup costs. Some of it is continuing, gets offset by the volume growth which you are seeing, right? And some of it is specifically the longer duration Bajaj program. As things stand right now, as I said earlier, Sumit, we expect you know, the transition of the entire network already happened in Q3 of FY 2022. We had, as you remember, Sumit, we had said that we require at least six months to optimize the entire network.
We are halfway there, and we feel well positioned to close that by the end of Q1. There might be some minor delay because of the few kind of issues, but we expect largely that we should be able to get it under control pretty well.
Directionally, the impact of Bajaj Electricals is going to be lower in Q1 FY 2023 as compared to Q4?
Maybe lower in Q2 FY23 compared to Q4.
Got it. Finally, just a data question for Meru. If you could spell out the revenue, EBITDA and profits for FY 2022 and Q4, and you know, what is the progress in closure of the deal? Thank you.
Sumit, I think the last few parts I haven't got Yogesh to answer that. We expect closing. We are targeting to close that transaction through the middle of this quarter. Right? Yogesh, do you have any specific numbers or would you like to comment on that?
Yeah. For the numbers, I mean, as Meru concludes its financials and publishes this, I mean, given the audit cycles underway, I think, we will put it out, once the reporting cycle is done.
I think it will also tie along with the closure cycle which Ram just mentioned, closure of the transaction and kind of come together.
Got it. Thank you and wish you all the best.
Thank you, Sumit.
Thank you. The next question is from the line of Pranay Roop Chatterjee from Burman Capital. Please go ahead.
Hey, Ram. Hey, Yogesh. Am I audible?
Yes, sir, you're audible. Please proceed.
Great. I had three questions. Firstly, on warehousing yield, right? If I compare your FY 2022 warehousing yield versus FY 2021, it has increased by 40%, right? What I want to understand is, again, it is logical to assume that it is primarily being driven by change in mix because your total square feet is 17.5 million sq ft for both the years. My first question regarding this is the mix the only thing that has caused this yield expansion? Number one. Number two, how has the mix of your non-stockyard space changed? When I say mix in that, I mean the part where you lease it versus the space where the customer leases it and you just manage it.
First, I think, as far as the warehousing yields are concerned, I think if you look at it, one big change is the mix change between stockyards and operating in our facilities. While the total number has remained the same, I think you would see that warehousing capacity itself, non-stockyard capacity has actually gone up by close to 22% during the year. That's the first big change which is there, because obviously our yields are much higher when we actually do a non-stockyard operation. The second thing which is there is, I think as you just pointed out, you know, our share in 90% of customer-provided warehousing facilities have been coming down.
During the year, we actually added 2.3 million sq ft of managed facilities, including BTS facilities which we fully rent out. Almost the entire growth which you've seen has actually come through that. In fact, there's been a reduction in storage and 9-foot wall, you know, space as well. That's the second thing, because typically, when we provide the entire solution as a whole, our yields are much better. The third thing which I think is happening is that on a year-on-year basis is the kind of work which we are doing is becoming obviously sharper and higher in terms of yield and complexity. Like we are doing fewer and fewer of pure storage-based solutions. We're actually doing more of processing work inside those facilities, right?
If you look at the investor deck and you'll see, you'll see some of the photographs which are there on slide 14, I think you'll see that the kind of the operations are also changing from plain vanilla storage-based kind of places to actually doing more internal piece boxing, piece out, you know, internal sortation floors, systems and so on. It's three layers. It's a stockyard versus warehousing mix change. It's the mix change between customer provided and company owned, company to its own provided, and it's the quality and the nature of the solution we are providing from the warehouse. It's a combination of all three. I don't have an exact split on the second and the third one.
If it's of interest to you, we can probably reach out to you offline and provide you with it.
Got it. Thanks. Excellent answer. Just quickly moving on. This is regarding the lease payments, right? In your reported financials, in your cash flow statement, there is this line item called financial lease obligations under cash flow from financing. What I noticed was there was a very quick ramp up in the second half of this year. If I compare the annual numbers, your FY 2022 number is 57% higher than FY 2021. If I want to benchmark this, the relevant number would be your non-stockyard space, let's say, which, as you pointed out, has grown by around 21%-22%. How can we bridge this delta? How can we explain this delta in your lease payments going up by around 57%, whereas your non-stockyard space has gone up by only 21%?
Pranay, Andrew, Yogesh here. Firstly, what number you're comparing for previous year would not be for a full year number. Certain warehouses we would have taken on board in FY 2021 itself. We have third quarter, fourth quarter, only a quarter or 6 months are in a proportional charge would be there. The entire 12 months would be there in FY 2022.
Okay. If I understand you correctly, you're saying the comparable FY 21 number is actually not comparable because it's not an annual sort of figure.
It's not annual figure from that perspective. Second, data point was also just to explain why is it not again comparable is because, as you know, certain warehousing what we had earlier was, we still continue to have some of the engagement at customer owned and leased warehousing which we operate, which is part of that space. That piece also it would not be and those do not have rental costs at all, right? You know, in a practical way. You would not be again, you know, be able to say that, okay, this is the percentage increase from... In basics I would have an optimum warehouse would be, either logistics leased and provided, and we wouldn't be able to see a disproportionate increase from that perspective.
Okay. Got it. Fair. Again, this question has already been asked, so I'll just pose it in a different way. This is regarding our-
Yeah. It's coming from this.
Sure. Sure.
Right. Because the way you should look at Yogesh's point, I think a better obviously is that we are obviously moving all the newer assets, our grade A facilities, which are of a much higher spec, right? You know, construction costs have also increased in the last two years because of all the commodity pressures. Therefore the lease cost of some of these facilities are also at a higher point than some of the historical facilities. The change in our rates is not necessarily at the same price at which we contracted the newer capacity.
Okay. Got it.
Wow.
Okay. If I look at your EBITDA and gross margin numbers in this quarter, right? 10% as you said, and then 5.1% for EBITDA. Is there any one-offs in this 5.1%? Because from what I understand and from what your commentary, something or the other has been affecting your margins in the last, say, seven, eight quarters. Is this 5.1% the closest to the normalized that we can see according to you?
There has not been any one-offs. I mean, these are all business operations related performance for the quarter.
Got it. Okay. In continuation with this, and this is my last question. You said that you have done a bunch of things, and you would be discussing that to expand your margins in this quarter. If you could just throw some light on what are those strategies?
No, I think it's what we said even at the end of last quarter. I think we had said we're gonna fix something, right?
Right.
We had explained why we thought margins have been impacted in the quarter. We had specifically called out three big levers or big elements there. First one was ongoing projects, which continues to be, you know, something which we'll not see the full benefit of, I think the Bajaj project till Q2 of this year. The second part was the utilization of existing facilities. We had said that, like much of the system, we added capacity, you know, in view of and in the first two years was not as well as we estimated. We are working on fixing that up.
Sorry to interrupt, but your voice is breaking up a lot, sir.
Okay. I hope this is better.
Yes.
Working also. The second thing I talked about was a little better facility utilization in our existing facilities, right, in lieu of the demand environment. I think that's something which we have done. We've optimized our capacities rather than adding footprint for it. Then
Sorry to interrupt, but your audio is breaking up. One second, sir.
Okay. The third thing we had talked about was the fact that, you know, significant challenges around manpower availability and inflation during the quarter, which really impacted us as well. We had said we are actually focusing our optimization programs and productivity improvement programs. You know, I think what we really did during the quarter was these two things, right? These three things. We focused on implementing our existing started programs faster, and getting better at execution of that. We have optimized a lot of our productivity on our workforce, especially our contract workforce. We've obviously optimized our footprint better as well. If you will see the quarter, we didn't add a lot of capacity on warehousing. We actually did, though we added volume, we actually were optimizing existing capacity.
Those are three things which we focused on, sir.
Got it. Thanks. I'll get back in with you. Thanks a lot.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Krupashankar N J from Spark Capital. Please go ahead.
Hi, Krupa. How are you?
Hi. Good, sir. How are you? Am I audible?
Yes, Krupa. Continue.
Yes. Thanks a lot. Thanks a lot for the opportunity. I think, you know, you have answered most of the questions which I have wanted to pose. One thing which I wanted to understand better was on the warehousing side of things. You did highlight the fact that the mix of stock at our operating warehouse has, you know, changed significantly. Your stores and line fleet has come up. In addition to this, you're also seeing that, you know, higher complexity in warehousing. All this, you know, directionally should have your overall SCM EBITDA margins at least moving substantially upwards from what you had seen in a FY 2020 or FY 2021 level.
Is it fair to say that, you know, the performance what you're seeing right now on the supply chain segment margins, you know, it should look if the scale improves quite substantially. You can look at, you know, compared to FY 2020, HCM margin is about 8-odd%. It should be far more higher than that in FY 2023, 2024. Is that a right way of looking at it?
I think while I will not give a guidance, Krupa, I think what you're witnessing, sir, obviously, is that as we increase complexity, you know, we will actually see an entitlement to better margins, right? That's been an underlying factor between the 25-30 basis points kind of guidance we have given in the past on gross margin improvement. Therefore, I think that thesis is still something which we hold by, Krupa, right? By now, as you do more complex facilities, obviously you have longer optimization windows to get to steady state earnings. Then you see further improvement after that at the tail ends of the contract.
Obviously, you know, over a period of time, we expect most of our newer sites to actually be operating at much higher margin levels. Right. To that extent, I think, Krupa, your directional hypothesis is accurate. About time stamping exactly to FY 2023, 2024, I think probably that's a good window when we expect to actually see most of our projects hit a purple patch in terms of of margin somewhere between your month 24 and month 36, right? Some of those capacity adds we have done in the last 12 to 18 months should start hitting that zone by that time, Krupa.
Got it. My second question was on, you know, you did highlight that there was a significant impact on Bajaj because of JV, the car carriers business. I think here the topic, what was the
Yeah.
Challenge out there?
No. As you know, I think we do have a joint venture company called 2x2 Logistics, which actually provides outbound services for automobiles, right? That actually is an assetized business where we actually own our own car carriers. These are outfitted trailers which carry cars, right? Through the years, that business has had challenges because of two reasons. One is volatility in demand patterns has meant substantial downtime. That's something which has been a challenge for the entire industry on car carriers. The second challenge obviously has been that, you know, has been the volatility in fuel prices because, you know, because the assetized businesses don't carry the same frequency of basic clauses, which we contract with, right?
They have actually had a higher impact of fuel. I think for the full year, the business actually, if I'm not wrong, and Yogesh, please correct me, but I think had a PAT of -INR 6 crore, in that range.
Mm-hmm.
Right? That was a challenge in the fourth quarter as well, right? Now, going forward, Krupa, obviously, as the market recovers, we expect to actually see a better flow-through across that business. Obviously, you know, some of the fuel pricing increases will come in to the whole industry on car carriers, and that will be a benefit for the company as well.
Got it. One more question we wanted to ask is that, so this broadly explains, I suppose, the subsidiary EBITDA margin. Now clearly, in the fourth quarter, the number had declined sharply. That's entirely because of 2x2, I'm assuming. I guess margins in your freight forwarding.
Margins in freight forwarding actually are pretty robust. I think there are obviously some quarterly changes, but overall, at a secular level for the year, you know, EBITDA margins for freight forwarding were actually 5.5%. They are up from 3.9% last year. The forwarding business actually has been a strong, you know, driver for high PPC, strong revenue and earnings improvement. On a full year basis, that actually grew from INR 6.5 crore to INR 16 crore, for Lords. So from a subsidiary perspective, Lords 2x2 and, our subsidiary, our joint venture pursuit, Lords 2x2 and Transmart actually did fairly okay in fourth quarter and the full year.
The 2x2 had an operating environment challenge, which as you know has been an overhang on the entire auto industry, and that's kinda worked out the profit.
Great. Last question from my side. On e-commerce set of things. I'm sorry, Ram, your voice was not that clear when you were explaining on the e-commerce set of things. Could you explain again. What are the steps taken on e-commerce side with respect to facility utilization. I couldn't quite catch what you were trying to express on that.
Krupa, I can't give you specific steps because obviously there are a lot of our clients remain engaged. What we've really done, as I said, is that we have optimized a lot of our footprint, so we can do multiple products or categories from the same footprint and avoid actually creating new capacity in the facilities. I would say it's just a tactical direction. Specific things, those are confidential and client specific.
I understand. What I was looking forward to, you know, hear from you was, you know, you did allude to the fact in the last quarter that the flex warehousing business is not as profitable as one would expected, and the opportunity. Is it more likely that, you know, the extent of participation of Mahindra Logistics in the flex warehousing would come off over the longer term or in the cycle between perhaps or a calendar year full?
No, Krupa, I think what I specifically mentioned last quarter was that because of the increases in manpower costs, the sharp increase in manpower costs, our flex operations in the festive season this year were impacted. Typically, flex operations, Krupa, are more manually intensive than PERMs. PERM sites actually carry more mechanization and automation, flexes don't, and therefore they are more sensitive to manpower cost. This year what happened was that given the volatility from a manpower perspective, Krupa, especially in our sites in the south, we did obviously see an aberration. But that's kind of what we feel confident we have got under control now. As a business model, I think flex will remain an active part of our solution portfolio.
In fact, this year, given the slowdown which has been there in the early half of the year on e-com, they were actually, if volumes do come back more strongly, we may see even more flexes.
Got it. Thanks a lot for answering my questions. I'll get back in the queue.
Thank you. The next question is from the line of Damodaran from Acuitas Investments. Please go ahead.
Yeah, thanks for the opportunity. My question is actually very similar to Krupa's. If you look at the last four years, mix has actually improved within the same business by almost around 10 percentage points in favor of warehousing. When you look at margins, it is now. It's actually gone the other way. While you did highlight a lot of it in the last Q3 call, but I was wondering why. I mean, on a full year, particularly if you look at margins have come down. Yeah, I mean, that was one question. Related to that, and how do you look at margins going forward?
should we track mix as a component for margin changes because the understanding was that warehousing obviously has a better margin profile. Since that has not played out in the last four years, will margins purely be driven by volumes or will it be pricing? I just wanted your thoughts on that.
Sure. Good question. I think there are a couple of things there, Damodaran. I'll probably answer them directionally. I think one, if you look at the overall SCM blend, I think the hypothesis is obviously if you took a 400 basis points difference to 500 basis points difference between warehousing-based solutions and transportation, you are looking at roughly a 50 basis points blended average improvement, right? About 10% strength, right? Assuming that there's been no impact on the transportation side of the business. What really happened for us, if you look at it, is a couple of things. I think the fact that fundamentally has remained constant, Damodaran, right?
What has happened for us obviously is the transportation side of the business has seen some headwinds, right, over the 3- or 4-year period, you know, especially as auto volumes have come down, right? That's been an impact. The second thing which has obviously happened has been in the more recent past, especially the last couple of quarters, has been the things we already talked about in the last 2, 3 quarters. As we try to grow up the warehousing business sharply and the solutions business sharply, we have more projects which are going up through startup. To put this in context, I think today our warehousing and solutions business is close to INR 1,000 crore, right? For FY 2022, and it's probably higher on a run rate basis, right? Obviously that sharp growth means you're opening more sites.
You're opening more sites, you're starting up more locations. You know that's had some period impact on our numbers in addition to the factors I already talked about in Q3. I think we're gonna have to let what we said earlier, Damodaran, is that as we see the blend overall, the warehousing business getting to a larger share, those benefits will become far more enduring. That's what are the key things or the direction to those. Right. We can actually if you do reach out to us probably specifically to Yogesh and our investor relations team, we can actually map this out for you more specifically on a year-on-year basis. To show the plan now.
Sure, I'll do that. Thanks. I mean, I think the second part of the question, what should be the key focus. I mean, what should we track for, I mean, looking at margins improvement? Will it be volumes or pricing on the current juncture?
No. I think, Damodaran, yeah, it's three, four things, right? Obviously one is volumes, right? The second one is mix, right? Both of those should actually have, you know, positive EBITDA movements, right? Our network services business, as they start maturing, will actually carry slightly higher EBITDAs in the 3PL business. Those will actually be as a mix in terms of overall mix change is a mix between instead of 3PL or warehousing to transportation-based services. Both those mix effects should actually, you know, increase in EBITDA growth, and then as volume also will show better leverage from an overhead perspective, right?
The last thing I would say, Damodaran, is that, you know, in the last couple of years with the change in accounting standard and the capacity we've been adding, we have had a period, an upfront, front-loaded period impact of Ind AS 116. As capacity matures, that impact should also start coming down, and that will actually be accretive to our numbers.
Thank you.
Thank you. The next question is from the line of Dipesh from Equirus. Please go ahead.
Thanks for taking my questions. The freight forwarding business has done very well this year. I think they've grown by 48%-50%. Can you give a breakdown of what is the volume growth and the pricing growth, and how do you think about the pricing and margins going ahead in this business?
Dipesh, great question. And thanks for your question. This is the forwarding business. I think overall, if you look at it, there are three parts which are driving growth. The first one I think has been the mix change in the product category. As you know, in our forwarding business we provide air and ocean, both of those. I think one thing which has happened has been the mix change to more ocean compared to air, right? And that's been a positive trend line in terms of pricing. The second change obviously has been raw pricing increases because of the current global cross-border issues which are there, right? That's the second part of the change. The third part obviously has been volume growth.
I think overall, if I just look at TEU growth, Dipesh, if that's the kind of a proxy you're looking for, it's roughly close to double digits on a year-on-year basis on ocean, right? So that's kind of roughly the volume growth which we are seeing, right? The realization growth, as I said, is a function of the mix change and the lane change we have. We are doing more volume towards the western hemisphere or across the Atlantic to the US, and South America. We are obviously seeing better lane rates because of that as well, right? So those three, four things, Dipesh, which together are driving growth. If you look at what we see in outlook in the business, let me talk about two things there, Dipesh.
The first one is volume outlook. We are very focused on expanding services, service coverage in the forwarding business. The way we are doing that is by doing couple of things. First one, obviously, is we are expanding towards our charter services offerings, so we can actually get that more aggressive growth on the air side. On the ocean side, we are also now investing a lot more in expanding lanes internationally. Not just in India origin or India domestic location, but also looking at more international lanes as well. Therefore will require investment by us in expanding our international operations, right, to cover that, but that's something which we are looking into, right?
That should be something which will drive our volume growth because that's something we should remain focused on. From a pricing perspective, I think in near term, you know, we don't expect a huge amount of softening, right, in the price. You know, given the way the pandemic is going across the world, right, we are actually not seeing any short-term reductions, right, or significant reduction in pricing, right? And that's something which, you know, we think the outlook will remain, reasonably stable. There might be some downside pressure on pricing, but that won't give any pressure, on margins in the short term, in the medium term, short to medium term.
Understood, sir. Sir, can you also give a breakup of how much of this freight forwarding business is for your anchor customer and how much is for-
We, you know, the forwarding business does not have an anchor customer. The largest customer we have, you know, is probably around 5%.
Okay. Got it. Sir, lastly, the non-Mahindra transportation revenue has flat-ish YOY and is lower if I look at for the last couple of quarters. Just wanted to check if there is any loss of contracts or any of the existing contracts have just slowed down.
No, it's just a slowdown. In fact, to be honest, I mean, the case is not. I mean, we've not seen it showing in our account base, you know. I mean, what has happened, as you know, is that, I think I mentioned to you that we had slightly slower growth in Express this quarter, because of the pandemic and some disruptions in operations on account of that. Fundamentally, there's been no real change, you know, in the non-Mahindra transportation revenue as such. I mean, our accounts are still the same. We obviously have seen, you know, lower volume, you know, volume movement because of the way the market's happening.
Got it. Sir, lastly, basically the Bajaj Electricals contract was, till now one of kind of a contract. Any similar contracts are you in talks or do you think the industry is actually moving towards that kind of outsourcing that this guy has, this company has done with you?
Absolutely. I think you know, I mean, there is a fundamental interest. A lot of our clients are very interested in actually saying that, you know, they just increasingly want to focus on what they are good at and not necessarily try to manage a whole bunch of other parts of their business, right? So the interest in actually being integrated in logistics, I think is very, very high from our clients, right? I mean, even higher I think for end-to-end kind of logistics operations. That said, I think what is important, what we also feel is that while we are expanding our solutions business, we also want to be sure that we are building strong playbooks.
The value proposition on this, I think providing clients a highly customized with integrated supply chain which combines people, technology and process, right, across the 67 different forms of logistics services is incredibly powerful once we execute it really well. Right? From our perspective, I think we've actually, you know, kind of taken a call that we are going to kind of slow down the pure end-to-end integrated logistics because of the environment of volatility which is there right now. I mean, you know, one of the challenges you must recognize is that we're in a very volatile environment right now in terms of fuel, in terms of manpower costs, right? Even in terms of hyperlocal demand patterns are highly variable.
We are trying to break down and avoid doing end-to-end logistics, but actually work with our clients to do this in smaller chunks.
Got it. Got it. Okay, sir. Thank you and all the best.
Thank you.
The next question is from the line of Alok Deora from Motilal Oswal. Please go ahead.
Hi. Good evening, sir, and congratulations on good numbers and improvement in margins. Sir, most of the questions have been answered. Just on the margin front, I just wanted to dwell a little deeper. You know, the margins have seen good improvement despite the start-up costs related to the Bajaj contract. How do we see that shaping up? Like, are we done with those kind of costs or would these margins improvement sustain in first and second quarter also? Because we, in the past, have seen little volatility on the margin side. Just wanted to have your view on that. No, sure. I think, Alok, we've had...
If you go back to last 12 quarters, I think we've really had 3 big events from a margin volatility perspective. The first one to remind all of us was in Q3 of FY 2019-20, which was around the automotive slowdown, which had a substantial kind of headwind on our business. The second one, obviously, was the COVID impact, which I think we actually bounced back from that very well. Till obviously we had the impact during Q3, which we had said were period impacts, excluding the start-up costs, right? As things stand today, I think the period impacts have been resolved, Alok, right? And therefore we think we are back to normative earnings on the rest of the business, with the exception of the start-up costs.
In fact, I think earnings have been unfavorably impacted during this quarter by 2x2 and the enterprise mobility business' margin decline. Sans those, I think we have seen given a probably even heavier margin performance. We expect that to secularly be capable to be operative going forward. The Bajaj account, this is a larger part of the start-up costs if we talk about. That I think, as I've said earlier, was always designed as a longer-term optimization. Impact is obviously extended by COVID. We expect to get that completed in terms of by end of Q1 this year.
Sure. Also, sir, on the diesel price move which we have seen, so have we taken any price hikes? Because what we understand is some of the other industry peers that price hikes have not been really taken to focus on the volumes because April has been relatively soft as compared to the fourth quarter.
I think, Alok, it depends on how contracting happens. Typically, for us as a 3PL asset-light model, we essentially have fuel-linked resets which are there in our contract. The resets work upwards and downwards. If prices go up, then we actually reset upwards for our clients. If prices go down, we obviously get the benefit. Thus far I think we have been pretty tight on ensuring the resets go through, right? Alok, we've really been pretty disciplined about that, especially in the last couple of quarters to ensure they go through. Sure, customers I think are struggling with fuel prices, right? I think it's not just a volume issue.
You know, supply chain costs are going up for many of our clients given this fuel. You know, transportation still is the larger part of people's logistics costs, right? The sharp increase in fuel is putting significant earnings pressure on our clients. There is obviously a lot of pushback, obviously, from customers to optimize the network faster, not allow the pass through. Thus far we have ensured that we are doing the increases on our contracts as per the reset clauses.
Sure. We have kind of taken the increase very well.
Yes. We have taken the price up to offset the cost increase.
Sure, sure. Just one last question from my side. Sir, as you're mentioning that this 5% margins which we have managed in the fourth quarter could have also been higher, but due to some reasons it was at this, these levels. I know we don't really give guidance, but in FY 2023 the margins could be, you know, marginally better than this for the full year? Hello? Hello?
Yes, sir. Please stay connected while we reconnect the management for sure. Your pass code has been confirmed. Please wait while you're joined to the conference. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.
Sorry, Deepak. I don't know where we dropped to. Steven, can you? I think there was a question which wasn't asked at that time.
Yeah. Hi, am I audible?
Yes, Mr. Deora.
Hello, Mr. Deora. You're audible now.
Sir, this is the last question which I had. Sir, as you had mentioned that the margins this quarter could have been even better than what we have reported, but due to some certain one-offs it was at these levels. In FY 2023 we could see, you know, margins in the 5%-5.5% sort of range for the full year?
Alok Deora, as I said, we do not give guidance.
Sure.
You know, from an overall business perspective, we do expect to sustain our first half volume growth coming both on the automotive side. We expect that the second half will show a strong correction upwards. That's something which we are gearing up to serve. On the non-auto businesses we continue to be focused on aggregate increased growth, right? I think this year is gonna be a slightly kind of a slightly different curve. I think the first half is gonna be a bit more muted given all the uncertainty and some of the commodity pressures and oil pressures we talked about. We are out looking for a strong second half, right? As we think all our end markets will get into better places by then.
We are obviously hoping to sustain the margin performance and improvements we have done. If not get better.
Sure. Sure. Yeah, I think, that's all from my side. Thank you and all the best.
Thank you, Alok. Thank you. The next question is from the line of Kunal Bhatia from Dalal & Broacha. Please go ahead.
Yeah, sir. Thanks for the opportunity. Sir, I just had one question. You did mention that the difference between a warehousing and a transportation business margins would be about 400 basis points. Is that correct?
In general, I think what we have said is, in the past, Kunal, is that transportation index across clients is probably around 7%. Our FTL, essentially our FTL transportation business, full truckload transportation business, and warehousing is normally in the early- to mid-teens.
Okay. All right, sir. I just had that clarification. Thank you.
Kunal, please do reach out to our investor relations teams and Logistix. Happy to provide you more insight into that. Sure, sir. Sure.
Thank you. Ladies and gentlemen, we take the last question for the day from the line of Krupashankar NJ from Spark Capital. Please go ahead.
Great. Thank you for the opportunity. Am I audible?
Yes. Loud and clear. We can hear you.
Yeah. Thank you. Just quite a long-term question around just what I wanted to understand is that, you know, we have been adding a lot of titles from FY17, 18 onwards. You know, back then, we had this discussion saying that, as the contract matures, you would gain a higher wallet share. Just wanted to check if you were able to quantify the extent of wallet share gains we have seen over this period.
Yes, I think if you really look at it, Krupa, just to give you a sense, I mean, let's just take a step back. I think if you really look at it, we closed the year at INR 4,100 crores approximately, right? INR 4,083 crores. You know, our M&M businesses are still 15% lower than what they were at peak 2018-19, right? You know, the mobility business is still down 60% compared to the past, right? Really, our non-M&M HCM businesses have probably seen a 700 to 800 crores swing in terms of revenue over basically 30 months. Right?
Now, you indexed further the fact that we, as you know, at the end of 2019 and early part of 2019-20, it's kind of a conclusion of what actually happened at the end of 2019. We essentially saw a significant reduction in one large transportation customer, which we had high volumes of in 2018, 2019. That number actually gets even larger than that, right? Obviously, a lot of that's come from our ability to extract more coverage from existing clients. Right? Obviously, a fair amount of it has come from new clients as well, right? We probably, I would probably say it's, you know, 60, 40, 60% from new clients, but 40% from existing clients as well, right? Now that growth has come in multiple ways.
It's been cross-selling from newer services, like freight forwarding, like last mile delivery, whether it's express. It's cross-selling into our existing client base. It's also just picking up more share of sites, more transportation lanes, right, with existing clients. That's probably been 40% of our growth, Krupashankar, 45%. 55% has been purely new client additions, right? That's kind of just to give you a sense of, I think I hope that directionally kind of answers what you are trying to ask, but I would just say that that's just some data points to help you frame that.
This is really helpful. One last question on the industry per se. You are seeing that a lot of these warehouse facilities are coming up. Still the rentals are increasing. I mean, are you seeing that you will eventually see that the rentals across topics in these locations will plateau out and perhaps that can put a pressure on RE? Is that a likelihood?
Krupashankar, I think it's a mixed bag. I think first, what's increasing rentals is a few things, right? 60% of demand is still in top eight cities. Those cities, I think additions are roughly equal to demand. You're not seeing a big shift, right, in terms of supply exceeding demand there. The second thing which I think is increasing yields, of course, is just a sharp increase in cost of construction. I mean, if you just see what's happening in oil and commodities, all that also blends in into construction cost. So I think I don't see an immediate change. I don't see a medium-term change in prices really on warehousing.
As I said, grade A, high-end, large box capacity is still not excessive in large cities, in the top eight locations, Krupashankar. I think given the construction costs being where they are, right, we don't really think it's gonna be a significant change. Obviously, the third thing obviously is liquidity will probably tighten. If that tightens, then, you know, we'll really see how, you know, that impacts the amount of funds which flow into commercial or industrial kind of grade the real estate versus the housing kind of real estate, right? Given those three, four parameters, I don't see a substantial, you know, supply glut, if you will, say. Okay, that's one.
The second thing which is there is, look, Krupashankar, we have contracted a fair amount of capacity, as you know, in the last couple of years. You know, in the last two, three years, we've added 2.5 million sq ft a year. This year, we just added 2.3 million sq ft. These are, with the larger BTS formats, we're actually locking in pricing for 5-10 years. Right? We think that's actually one of the reasons why we are doing that. It is we are playing for the long ball here, right? We're not doing this for the, you know, to play for the over. We are playing for the match. Right?
We think that strategy also provides us protection from that long-term inflationary trend for us.
Understood. Thank you. That was really helpful. Wish you all the best.
Thanks, Krupashankar.
Thank you. Ladies and gentlemen, in the interest of time, that was the last question. I now hand the conference over to Ram sir for closing comments. Over to you.
All right. Thank you, everyone. I hope we've been able to answer all your questions satisfactorily. However, should you need any further clarifications or you may want to know more about the company, please feel free to contact our investor relations team at SGA or our own team. Thank you once again for taking the time to join us on the call and for your interest in the company. Stay safe and take care. Thank you.
Thank you. Ladies and gentlemen, on behalf of Mahindra Logistics Limited, this concludes this conference. We thank you all for joining us, and you may now disconnect your lines.