Ladies and gentlemen, good morning, and welcome to the Mahindra Logistics Limited Q1 FY 2023 earnings conference call. As a reminder, all participant lines will be in the 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shogun Jain from Strategic Growth Advisors. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on the Mahindra Logistics Limited Q1 FY 2023 earnings conference call. We have with us Mr. Rampraveen Swaminathan, Managing Director and CEO of the company. Due to some exigencies, Yogesh Patel, CFO of the company, could not be on the call today. I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on company's website and stock exchanges. We will begin the call with opening remarks from the management, following which we will have the forum open for a Q&A session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I would now like to invite Ram, MD and CEO of Mahindra Logistics Limited, to give his opening remarks.
Thank you, Shogun. Good morning, everyone. I hope you and your loved ones and colleagues are doing well and keeping safe, and I hope you all have had the chance to review our results and the presentation, which is available on the stock exchanges and our company's websites. This morning I will be providing quick update on the external environment, trends in our end markets and businesses before sharing commentary on our operations, order intake, and some key corporate developments during the quarter. I'll wrap it up with a commentary on our financial performance for Q1 2023 and the focus areas for the rest of the year. Just beginning with our external environment end markets. The external environment remains uncertain, with broad indicators indicating a mixed outlook.
The challenges of increasing inflation and rising fuel prices as well as global uncertainties which persisted through last quarter continued, you know, currently. Our interest rates continue to become firmer in India and globally, and the rupee has continued to see pressure and depreciate against the dollar. While the direct impact of the Ukraine crisis has been moderate, based on different industries, the trends of uncertainty continue. On the positive side, through the last quarter and currently, we continue to see a debottlenecking of global supply chains and key components. Commodity prices have started cooling off and unemployment, especially in India, seems to be under control. The continued focus of the government through multiple initiatives have seen further acceleration in several areas, such as highway infrastructure, which continues to expand.
The Gati Shakti Programme is driving greater convergence across multiple areas which impact logistics. With the development of modern technology, the logistics industry will see a significant differentiation. Unified logistics platform initiatives and ONDC will further help accelerate transformation in the sector. Moving on to our markets, the auto sector was obviously impacted in Q1 FY 2022 due to both COVID and supply chain issues. Thus, on a comparative basis, the first quarter of the year has been very strong. The sector is making a concerted effort to unbottleneck supply chain issues and rise above the pre-COVID level. Limited consumer confidence, particularly in rural India, a high cost of ownership and inflationary pressure continues to limit the growth of two-wheeler sales.
On the EV front, the two-wheeler and three-wheeler industry have started seeing the shift, accelerating, and there is increased customer preference towards EVs, across the board. The passenger vehicle market continue to expand, along with the increasing acceptance of four-wheeler EVs as well. The semiconductor scenario is getting better, and we have seen higher shipments across all the OEMs we are partnering with. Despite that, waiting times, particularly in compact SUVs and large SUV segments, remain lengthy. Strong bookings for newly launched vehicles indicate a good pipeline of demand, right? We are optimistic about, you know, the fact the second half of the year will see, will accelerate the recovery.
After a weaker Q4, we saw a strong rebound in the tractor market, which continues to perform strongly due to increasing food prices resulting in stronger cash flows for farmers. Moving on to other markets, we begin with e-commerce. The pandemic obviously has had a significant effect on the e-commerce industry, and the crisis accelerated the growth of several e-commerce players, right? A consumer shift right in terms of the way people purchase both luxury items and everyday necessities. In the recent quarter, the growth has been lower in some categories compared to expectations, and in the near term, that phenomenon seems likely to continue. Marketplaces and D2C brands are aggressively driving optimization across the value chain while also looking to leverage technology to make the supply chain more agile and efficient.
The focus now has moved towards productivity and network efficiency rather than just network expansion, and most players are trying to sweat the existing infrastructure more aggressively. There continue to be network expansions actively in the quick commerce, same-day delivery models, groceries, and in upcountry geographies. On the consumer side, the durable industry has been strongly benefiting over the last couple of years, supported by the larger home improvement theme, which has played out during COVID. However, increased input prices recently have prompted companies to raise prices to offset cost increases, right, partially resulting in demand moderation. Due to severe summers and multiple heat waves, the air conditioning and fan sectors and our customers in those segments performed strongly during the quarter. Commercial institutions reopening and operating at higher capacities have also resulted in demand recovery in the commercial air conditioning space.
Consumer appliance demand was fairly robust in April and May, but demand just decreased in June, right as there was a sentiment due to rising inflation. Although the onset of the monsoon season will probably have an impact on building and renovation activities, momentum is still robust across the board. Demand growth in FMCG and personal care categories remain moderate. Like in e-commerce, most of our clients have shifted their emphasis towards efficiency and productivity versus network expansion. The emergence of omni-channel has also become a larger factor for players to consider in the design of their network. The freight forwarding segment has seen a mixed, you know, market trends during the quarter.
While overall demand still remained robust, you know, we did see variability across patterns, and the supply situation scenario was also highly variable during the quarter. You know, given the challenges we are seeing from a supply perspective, there was some margin pressure through the quarter, we believe, across the industry, especially right in the Asian lanes. Demand and availability and outlook for the European and the U.S.-based lanes still remain extremely strong. Enterprise Mobility is gaining traction due to increased implementation of working from home, working from the office by many organizations. We anticipate significant consolidation in the industry going forward. Post-COVID, there will be a sharper focus on service quality and safety standards.
Business and other travel continues to grow, and this has resulted in stronger demand environment for airport transfer and transportation, both from the enterprise and B2C segments, and we expect that this, trend will continue. Post-COVID, the focus on safety and security has increased significantly, and we think this is a positive headwind as trip counts start edging back to pre-COVID levels. A shortage of supply due to a large number of driver-cum-operators leaving the industry during COVID, and the increase in total cost of ownership due to BSVI vehicle pricing and rising fuel costs has put supply pressure across the industry. Given this context, I'll talk a little bit now about how our business performed in Q1.
We continue to witness robust volume growth in the 3PL and the network services businesses in supply chain. During the quarter, the 3PL business grew by 40% on a year-on-year basis, driven by both recovery in auto and the continued volume growth across our existing sites and accounts. Integrated solutions implemented over the past quarters continue to drive volume growth in the non-M&M side and the non-auto side of the business. The M&M business grew both in auto and farm by 40% with robust growth across both the markets. Farm especially grew significantly sequentially on a quarter-on-quarter basis. Our non-M&M businesses grew by 33% in 3PL segments year-on-year, driven by growth across the board, across e-commerce, consumer, and manufacturing.
The share of solutions and warehousing grew by upwards of 60% on a year-on-year basis. Sequentially, compared to Q4, we saw, as you know, an 8%-10% growth in 3PL volumes. Network services, which comprise freight forwarding, Last Mile Delivery, and B2B Express, grew by 20% year-on-year during the quarter. The freight forwarding business grew at a healthy rate. We were impacted by volatility in lean demand and carrier availability, especially to and from Asia, which carried some pricing pressure. Express was driven by continued volume growth across our network, where we now directly serve over 4,000 pin codes. Last mile delivery growth was consistent, right, with prior quarters.
The last mile delivery numbers here do not include the operations of Whizzard in our numbers. The EDeL Fleet now stands at nearly 700 vehicles, right, with a strong vehicle on road ratio. During the quarter, due to asset configurations and overhauls, our fleet in 2x2 remained inoperative for the entire quarter or for the large part of the quarter. Those rebuilds are going on right now, and assets are being introduced back on the fleet. We expect that to be completed fully by the end of the current quarter. Our warehousing network remains stable with most capacity additions slotted for Q2, late Q2 and Q3.
We estimate to add another 1.5 milliob sq ft-2 million sq ft in FY 2023, and we'll see additions of the last block at Luhari and new facilities in Bhiwandi and Nashik during the second quarter. During the quarter, we also had several key account wins for large, one of the largest quick commerce companies. We launched regional, you know, fulfillment center operations in Hyderabad. For one of the leading retail networks, we expanded the integrated distribution work we are doing and added one more state. We now work with them across three of their states' operations. We launched same-day delivery for leading e-commerce delivery company in nine cities. We also launched a network optimization model for multimodal transport, both surface and air for a leading global pharma companies.
Overall wins for the quarter on the non-M&M basis carried an annual contract value of INR 200 crore. The impact of this, of course, will not be seen immediately. This impact will flow through the next four quarters based on the launch and commission dates of different businesses. The mobility business continued to recover, register recovery path. Volume of airport business at Meru is up significantly and close to around 50%, year-on-year, right? The ETMS business, on a trip count basis is also up 20%-30% across the cities which we operate in. Despite our—you know, despite some of the overall headwinds, I think our operations remain pretty robust during the quarter. I would like to also add some comments on recent corporate developments.
Let me start with credit ratings. Recently ICRA Limited has reaffirmed the long-term credit rating of AA and a short-term rating of A1+, assigned earlier, to the INR 235 crore credit facilities, and has also assigned a long-term rating of AA and a short-term rating of A1+ to the enhanced credit facilities of INR 100 crore. During the quarter, we also incorporated two subsidiaries, you know, one each in India and United Kingdom in order to undertake supply chain management, primarily freight forwarding and air charter businesses across geographies outside India. The new operations will enable our company to further address growth opportunities in cross-border logistics and other market spaces, and will also help expand and build an international presence.
Businesses in these areas will be launched through the end of this financial year. Whizzard, you know, our investment objective in Whizzard has been to strengthen the company's footprint and capabilities in last mile delivery and micro fulfillment services for our customers. You know, in line with that, we have acquired a stake in Whizzard, which operates a large pan-India intercity distribution network for e-commerce and last mile delivery and has strong technology capabilities. This acquisition accelerates our expansion in that space. On April 8th, we acquired 36% of Whizzard's paid-up capital on a fully diluted basis to become an associate of the company. For Q1 FY 2023, Whizzard's revenue, which is not consolidated, was INR 29 crores, up 13% year-on-year. Losses attributed to our shareholding on a net basis was INR 30 lakhs during the quarter.
Our synergy programs are well underway, and we estimate that the long-term, you know, potential of Whizzard remains extremely strong and will be accretive to our overall portfolio. In addition, we also completed acquisition of Meru Cabs, a ride-hailing company, as you all are aware of, and has a strong, you know, presence in the space of the airport services and on-call business market. This purchase will provide significant synergies by combining Alyte and Meru's capabilities in supply chain technology management and electric mobility, as well as enabling services for our enterprise and B2C customers with a broader bouquet.
Meru has a total number of 430 vehicles in its portfolio fleet, of which, 250 vehicles are EVs of a fairly recent vintage, and 180 vehicles are ICE. During the quarter, Meru generated INR 22 crores as revenue and while incurring a PAT loss of INR 2 crores. Revenues grew by over 50% year-on-year and losses declined from a INR -6 crores in Q1 FY 2022 to INR 2 crores in Q1 FY 2023. Our earnings reflected the full consolidation impact, and the earnings for the same quarter of last year have been restated for comparative assessment.
As we continue to invest in synergies, we believe operational performance and customer satisfaction will continue to see positive traction, driving greater synergy and value in the enterprise mobility segment. Let me now quickly cover the consolidated financial performance, right, for the quarter ended thirtieth June 2022. Our revenue for the quarter increased 30.6% to INR 1,200 crore as compared to the same quarter in the prior year. Revenue grew by approximately 10% on a sequential quarter-on-quarter basis. Revenue from supply chain management comprised of 95%, and the mobility business contributed 5% in the quarter under consideration. Gross margin for Q1 FY 2023 stood at 10.3% as compared to 10.5% in Q1 FY 2022, a decrease of 27 basis points.
Gross margins were impacted favorably by higher volumes and cost management, while it will also be impacted by a higher mix of transportation, the limited operations of 2x2 and slight softness in the margins of our forwarding business. EBITDA for the quarter stood at INR 69 crore compared to INR 43 crore in the year gone by. PBT was up, on a fully consolidated basis, restated basis, was up by 211% from INR 6 crore in Q1 FY 2022 to INR 19 crore in Q1 FY 2023. PAT was up, on a fully consolidated basis by 337% to INR 13 crore in Q1 FY 2023. These are numbers on a consolidated basis prior to the consolidation of Meru and the share of Whizzard.
PAT grew from INR 9 crores last year in the first quarter to approximately INR 15 crores this year, registering a growth of 60%. The proportional revenue from the Mahindra Group comprised 52% during this quarter. Let me also share some highlights of segment performance. Revenue from the supply chain segment grew from INR 840 crores to INR 1,143 crores. Mobility segment on a fully consolidated basis grew around INR 57 crores, up by 33%. Our revenue from the Mahindra Group supply chain business increased from INR 440 crores in Q1 FY 2022 to INR 616 crores, up around 40%. Our non-M&M businesses grew from INR 400 crores in Q1 FY 2022 to INR 526 crores in Q1 FY 2023.
We also saw strong growth on a quarter-on-quarter basis. Our warehousing and value-added services for non-M&M businesses has grown from INR 130 crore in Q1 FY 2022 to INR 211 crore in Q1 FY 2023, registering a growth of 60%. Share of warehousing and value-added services in the non-M&M SCM business has reached 40% in Q1 FY 2023 compared to 33% despite the strong growth we saw in transportation services. Broadly, of the non-M&M SCM businesses, auto, consumer and manufacturing contributed nearly 35%. E-commerce contributed around 13%, and the rest was distributed across multiple markets. As we look forward, we continue to be committed to driving growth and building our strategic platforms from a long-term perspective.
At the same time, we are focused on cost management, operating cost productivity and driving improving capital efficiency. The Bajaj end-to-end solutions project is nearing full implementation. As we had indicated earlier, in Q1, it was almost completed. Post the same even now, that should now be complete in the early part of this quarter fully, and we'll now focus aggressively on steady-state margin enhancements there. We expect to see a demand uptick in our existing accounts driven by greater volume throughput and an uptick on global forwarding through the second quarter. That said, external markets remain uncertain and therefore we remain focused on driving cost productivity improvement and productivity across our entire network.
The continued focus on initiatives combined with initiatives we have been expanding services inorganically, hold us on course to execute our long-term strategy. With this, I will open the floor for questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. 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 Damodaran Kutty from Acuitas Capital. Please go ahead.
Yeah, thanks, and congrats for a decent set of numbers. I had basically three questions. Two on margins. The first is your unallocable expenses. They have now reached around 4.9%, which is including Meru, which seems to have contributed around 50-60 basis points of that. In light of this 4.9%, how would you revise your guidance which you had earlier given that it would be in the range of 4%-4.5% on a long-term basis? Yeah, that's the one on margins.
Yeah, you wanna just finish asking all the questions and I'll take all of them together, Damodaran.
Sure. The other one was on SCM gross margins. We are still, while you highlighted a few positives that played out in the quarter, we are still down 50 basis points on a year-on-year basis. While you had said that margins will normalize by H2, what additional levers do we see from current levels for margins to expand? And how far, I mean, what would be the delta from current levels that we would want, I mean, we would be looking at? The second and the last one was on warehousing space. Now I think about a year ago you had said that there'll be 4 million additional warehousing space which is contracted and supposed to come in by Q1 FY 2023.
You're talking about 2 million space additionally from 17 million. That takes to around. I mean, that still leaves us 2 million short. Just, I mean, would love to know your comments there.
Sure. I think SG&A margin. Let me start off obviously with the analyst's allocable expense number which you kind of referred to. I think, as you know, Damodaran, we don't give any specific guidance, but I think from an I would say from a broader aspirational perspective, if you would like to call that out, I think that remains consistent. What we had earlier disclosed remains pretty much what we are aspiring to do. Right. I think, you know, obviously you will see the impact of consolidations and acquisitions which have to be added into that. We can share the breakouts and kind of work with you to help you better give you that clarity.
Right? From a broader aspiration perspective, as portfolio is stabilized despite the acquisitions, we expect to be at the same level. If you look at the warehousing question you had, I think we ended FY 2022 with around 17.5 million. That's when we kind of said that we have 4 million which is gonna get constructed over the next 12 months. We have another 2.5 million, which has been tendered, 2+ million plus which has been tendered. If you actually look at it from that period onwards, our pure warehousing, excluding stockyards, has already grown from 11.1 million to 13.3 million. 2 million, 2.2 million of that has already been completed.
As I mentioned earlier, we have another INR 2 million which will get done, you know, in the near term. We are having several launches which will come out, you know, or go lives, which should happen later this quarter itself. Those project constructions are a function of multiple things. Luhari, for example, the last block was delayed because of weather issues and government regulations around that. With commodity prices going up substantially, we've had to, you know, renegotiate. Many of our vendors have come back for price increases, which we have to negotiate downwards again, right? Those have resulted in some delays.
The 4 million which I had said in Q1 last year, which is also covered in our annual report in our chairman's remarks, those will be completed, you know, this year. There'll be some additional pre-scope warehouses which happen along the way. Another 2 million, as I said, has already been tendered and is getting into construction right now in a second phase network expansion in existing and new locations. The big delta you have to adjust there is just the fact that we have continued capacities. We are driving more automation and technology across our stockyards to actually drive more volume throughput with lesser space.
That's a long-term trend which you will see will continue, but will actually help us improve our margins in stockyards, which generally has been a very low margin business for us. Lastly, I think as far as your supply chain margins concerns, I think a way to look at obviously is during the quarter, we had, on a year-on-year basis, around a 30% increase in our transportation business, right? That remains a very large part of our overall volume, right. That includes some of our network services businesses which are expanding, which we're still investing in, like freight forwarding, like B2B Express and Last Mile, which are lower than our average margin, and we are expanding that.
It's really mostly been a shift mix there, which has resulted in that drop of, I think, around 30 basis points year-on-year, right, in the supply chain margin space. Right, 50 basis points, I stand corrected in the supply chain space, but most of that is really a call-out of two things. One is the shift in margin in mix, and the second one, which is there, is that during the quarter, if you see the detailed schedules and accounts, you will find that in 2x2 we actually had a loss during the quarter because we were basically rebuilding those assets, and that had an impact. Couple of those things actually, mix and 2x2 were the larger factors which drove the decline in gross margins.
Otherwise, we're probably being slightly higher than the same quarter last year. I don't have the exact waterfall with me right now, Damodaran, but we'll be happy. If you contact our investor relations team, I think they can share more context with you.
Sure. Just one clarification on the 4%-4.5% guidance. Is there any timeline for that, where by which we'll achieve that? On the SCM, will the current sort of mix continue to persist or will there be a mix change which will also add to margins?
No. I think this year, I'll be the first one to be honest, Damodaran. I'll be perfectly candid. I don't actually remember when we gave this out specifically in terms of a quarter or a time. As I said, there is no specific. There's no guidance. There's an aspiration we have. If we can, we'll get back to you on that specifically, right? We'll just check our notes and be sure before giving you a specific commentary. As I said, the aspiration is still in that range. I think this year, you know, as we've said earlier also, Damodaran, as the automotive recovery has come through, automotive is much higher of a transportation business than a warehousing and solutions business.
As the automotive businesses comes in, we will obviously see a skew towards transportation that will weigh in on the margins, right, in terms of a mix impact. You know, this year right now, while we've had good order intake in the first quarter, as I said, uncertainty still remains. We'll have to see how the peaks go this year, right? There's still a lot of call outs and possible ups and downs. And therefore, I think this will probably be a year where we'll see higher transportation growth than we have seen, and that will have some impact from a time period in terms of the margin mix.
Sure. Thanks a lot, Ram.
All right. Thank you.
Thank you. The next question is from the line of Depesh Kashyap from Equirus Capital. Please go ahead.
Hi, sir. Thanks for taking my questions. Sir, firstly, given the recent successful launches by M&M, if you can give some color on what kind of growth visibility you have for the M&M SCM segment specifically for this year. Secondly, just wanted to clarify that the INR 22 crore revenue of Meru Cabs that you have booked in this quarter, is it the full quarter revenue or the revenue since acquisition that is 17th May? Lastly, your EMS Alyte segment, right? That still looks to be operating at 30% of the pre-COVID level. If you can give some color how you expect it to grow going ahead. Thank you.
Sure. Let me kind of answer all of those. I'll start with the first one, I think. I think obviously, you know, M&M is our marquee customer, and they've had, I think they have had some pretty strong launches, three great blockbuster launches really, and something which, you know, as part of group leadership, I am obviously very proud and excited about. You know, at this stage, I don't think, while there has been strong traction, and M&M is seeing volumes grow given their important supply chains. I'm not in a position to have a specific view on how their volumes are moving.
What I can say is that we do expect to see in our business higher volume growth of movement from the Mahindra business as well as you know good volume growth from the non-Mahindra businesses we work with on the automotive side. I don't have a specific guidance Depesh on how volumes will move with the new launches. As far as your question on Meru is concerned, I think the INR 22 crore is the full quarter revenue. It is a full quarter accounted revenue on the platform revenue of the business and reflects that fully. The third question that you had was on EM. Net of Meru, the EM business was around INR 35 crore in the quarter.
That's approximately 40% of your peak, your pre-COVID periods. What we are seeing is that, you know, while trip levels have actually come back to higher than 40%, but one of the things that you're also seeing, Depesh, is just shorter trips. You know, before COVID, we used to have a lot of people, for example, going from Noida to Gurgaon. This would be NCR as an area. We have a lot of people going from Noida to Gurgaon, for example. Right? But that's not happening so much. The trip counts have come back, but the kilometers have not come back fully. Right? Therefore, we are seeing that counts going up by 20%-30%, which is why I specifically mentioned trip counts in my comments, right?
That's not actually translating to revenue because the kilometers are not growing so much. I think on the positive side, almost all our accounts, I think, are coming back strongly in terms of declaring work from office. It will take, I think, another three, four quarters before it becomes a place, that point where everybody comes almost every day to office. That's kind of the volume we need, you know. That's what you need to see to get ETMS back to historical levels.
Agreed, sir. Thank you, and all the best.
Yeah.
Thank you. The next question is from the line of Mukesh Saraf from Spark Capital. Please go ahead.
Hi, Mukesh.
Yeah. Good morning. Good morning, Ram. I had a couple of questions. First is, going back to your warehousing space. This quarter was 13.3 million sq ft, and I think in your opening comments you mentioned that you'll add about 1.5 million sq ft this year. You know, do you think it's a bit too conservative, especially given your long-term targets? I mean, you had a five-year target in, say, FY 2021, saying you'll probably, you know, add 20 million sq ft around that number. How do we look at that target vis-à-vis a slightly muted growth that I mean that we believe this year in square footage addition?
Mukesh, I think you know the way I would put this is that we are pretty. I mean, if you look at the 20 million sq ft, we are pretty much on target to get there by early next year. If.
Yeah. Yeah, yeah.
Yes, yes. Okay, yeah. Yeah, in addition we said over five years we'll probably be in that range.
Yeah.
I think this year we will overall in the year, if you add the first quarter, right, second, third, fourth quarter, I think we'll add around 2 million sq ft this year, right?
Okay.
We've had some movements which are, you know, which are moving around because of the inflationary environment. As I said, we've already, you know, contracted another 2.5 million sq ft. Now, bear in mind, Mukesh.
Yeah.
This is all just our multi-client facilities. This excludes.
Okay.
Capacity additions we do on a bespoke basis, right? The bespoke basis is driven by how demand moves, right? As we get more projects which require something to be added, we obviously will continue to add that. We are also trying to drive a lot better yield on our warehouses, right? By driving better productivity, faster transition of, you know, and you know, faster velocity through our warehouses, we're also trying to increase and expand the yield from the facilities. The long-term vision remains the same, Mukesh. There's no conservatism on it.
I think, given the broad inflation which has happened across some of these, on some of the commodities in the last 3-6 months, you know, we've had to go back and recontract or renegotiate several of our facilities and slow down a little bit of the contracting. But as I said, you know, we've got another 5 million sq ft actually, which is in construction, right? 2 million sq ft will happen this year, another 2.5 million sq ft have been contracted. It should happen somewhere in the early part of next year. I think you'll also see us increasingly going down to smaller cities, right? We are launching in, you know, Guwahati, in Patna, in Lucknow. We'll be launching in Nashik this quarter. We are also growing in.
That second level expansion which I've talked about earlier will also continue to happen.
Right. Understood. My second question is, you know, when I look at the annual report, you had mentioned in, you know, that the freight forwarding, B2B Express and Last Mile, these three businesses together are now 20% of your overall revenue. Probably having, you know, more than 1.7 million packages on the part truckload business. How do we look at these segments? I mean, because we're focusing obviously a lot on the SCM side of it, but if I kind of step away from SCM and look at these other businesses, largely in freight forwarding and the B2B Express and Last Mile, can you give some sense on the growth there, the profitability there?
Sure. I think, Mukesh, I would say that, you know, I think for us, the 3PL business and the network services businesses are the two broad constituents of supply chain, right? Supply chain in turn first is broken into 3PL and the network services business. The network services business.
Sure.
You know, it's not a lumpy business. The 3PL business is a business which move as we add projects, you will see the full revenue of the project starts coming up within three, four months. Therefore you actually start, you see, some of this lumpiness in growth. Whereas the network services business is really a fractional business where you're doing small volumes with each individual customer and therefore the growth tends to be more consistent. If you go back and look at our volumes, our revenues over the last eight quarters, they've been growing every quarter. It's not. You don't have, you know, flat, you know, slow growth and then sudden high growth. It's tricky in our business to actually continue to see growth there.
We remain at, you know, it's roughly 20% of our revenue. I think I mentioned earlier that our long-term vision is that it should probably go up to 30% of our revenue. We remain very optimistic about the opportunity and the potential around those businesses, and our ability to take those business and combine them with 3PL and give customers unique value props, right? Now, from an earnings. So, I think, you know, for us the 20% growth is actually good because it's consistent with the kind of growth curve which we have been maintaining, and the ability to do it every quarter, I think is critical. Right, quarter-on-quarter, and then expand it is kind of the way we are looking at the business, Mukesh.
I think from an earnings perspective, I think you will see the large numbers. Large has been, you know, has come from a low base. We have actually been able to raise through pricing discipline, increased scale, been able to get that margin up to a curve where the margins are actually better than the rest of our 3PL business.
Okay.
The B2B express business and the last mile delivery businesses are not at the same earnings level. We are investing in building the network in those. Just like we did in large, it is a three, four year window before you actually start building those, we'll start seeing kind of the sweet spot in terms of margins. That's the investment we'll continue to do as we build revenue growth and capability development.
Right. Just to follow up, lastly, I mean, you mentioned that the margins are not yet there for the B2B Express and last-mile, but do you think potentially these can be higher than the core business margins that we have right now?
Yes. I think if you look at, I mean, our goal really is. I think if you look at industry comps as well, Mukesh. I think you will find that the network services businesses.
Yeah, yeah.
Are at a higher margin, and that's kind of what we are. We have our aspiration to build as well. In fact, our aspiration is to really say how we can take the 3PL business and the network services business and integrate them together into solutions for our clients. That's where I think the magic will really happen. There is both obviously a segmental earnings potential, Mukesh, but there is the value of integration which we have seen playing out in several accounts as well.
Right. Got it. Thanks a lot, Ram. I'll get back with you.
Thank you. The next question is from the line of Manoj Bahety from Carnelian Asset Management. Please go ahead.
Hi, Ram. Good morning. I'm Manoj from Carnelian Asset Management.
Mr. Bahety
Hello.
Your voice, we cannot hear you properly. Can you please repeat?
Is it better now? Hello.
Sir, there is a slight disturbance from your line which is coming along with your voice.
Is it better now?
Yes. Please proceed.
Yeah, Ram, I have three questions. First one is, when we say look your margins, I think last two quarters there was some impact of few of our customers operating at a lower operating level from which was impacting our margins. Going forward, how do we see the sustenance as well as improvement of margins from here, looking at the way the competition is there whenever you get a new customer. Do we expect that this margin volatility will continue or, with operating scale benefit coming back, you see a gradual and sustainable improvement in the margins?
Yeah. I think the two different, obviously the two questions, Manoj. Let me answer those both. I think in Q3 last year, we obviously did have lower op levels in many of our sites. That was on the back of frankly a weaker peak than we at least expected, right? Because of the way the configurations were. We have since then, as you know, put a lot of effort on that and I think now most of our facilities are actually seeing stronger throughput. You will see, for example, that our warehousing and solutions revenues grew by around 15% sequentially. Around 13%-15% sequentially in the year, in the first quarter, even though capacity was flat. The total amount of space was flat, right?
That's kind of the work we are doing to actually get better throughput and velocity. I think most of our assets right now are operating, I would say, at peak levels. I don't see that anymore as an issue. I think from a market perspective, markets are tight, really because obviously pricing is competitive and we are in an inflationary mode right now. You know, that's always a difficult place to be when we are seeing high in an inflationary environment with a lot of pressure from customers and competition on pricing. Thus far, I think what we have done is we have continued to invest a lot in both differentiating ourselves and ensuring that we put in better pricing discipline.
Therefore, we fully expect that these margins will kind of hold themselves. In fact, we are actually committed to the broader improvement we said as well, Manoj, which is that, you know, on a mix-adjusted basis that we actually hope to see 30-50 basis point improvements every year. That's something which we remain committed to as well. Right. I think there's a significant amount of leverage we have, you know, in terms of doing continuous improvement in our business. Obviously, we have to be very careful about the way we contract and maintain good pricing discipline on the demand side. That's kind of what we are hoping to, you know, continue to deliver, Manoj.
Yeah. Sure, sure. My second question is on your strategy. I think earlier you had mentioned that last mile delivery is a business which is not profitable. Mahindra Logistics, I think, initially stayed away from this business. Now I think we are entering into this business. Do you think that in the medium term, investors can expect that some kind of margin pressure because of our entry into this business, which earlier I think we were avoiding, right?
Yeah. I would say, Manoj, I don't think we ever said that. I mean, I think to calibrate what I think we said as a company, we said that, you know, that margins in last mile delivery remain, you know, remain extremely challenging, and we are investing in building a playbook to be able to win that space, right? I think over the last two years, we have tried to invest in building that through a combination of doing distribution as a service.
Not just delivery as a service. We don't just own the plain bikers going and dropping stuff. We actually try to run the hubs, the delivery station, and to integrate that with delivery. I think and within doing that, more of that and building an increased focus on electrification, we now believe, I think we have a really good playbook, right, on last mile delivery .
We have line of sight to target margins over three, four years, two, three years, right? With the Whizzard acquisition, we feel good about the opportunity to get scale, because that is the largest space, frankly, in e-commerce and other parts. It is a very large segment, right? Last mile delivery. I think now we've got a playbook in place. We are actually now in the process of executing that playbook, right? Y ou know, building deeper micro-fulfillment capabilities, investing a bit more in tech and expanding the network.
Our unit economics are actually fairly good. Therefore we think as scale builds out, we'll be able to now get the kind of target margins we hope to have.
Sure, sure. My last question is, still, I'm not able to understand why Mahindra Logistics is doing capital allocation as well as bandwidth allocations toward Meru. I'm not able to understand any kind of synergies between your business and Meru. Just wanted to understand what is your game plan for Meru? Like, you are just holding it for medium term, eventually it will be, like, sold off. That is one thing, I would need some color from you.
Manoj, I think, historically, I think there have been synergies between the businesses. You know, there are some amount of overlap in terms of customers, the mobility business. I'll first address where there is synergy and where there are no synergies, right? There are some synergies which are there. I think they're mostly twofold. I think on the non-IT customers, there's a fair amount of common overlap. Like, we do business in mobility for a GE or for an e-com customer, right? And we do that in mobility and in supply chain. There are some overlaps in terms of go-to-market. The second piece actually has been procurement.
You know, the one of our strengths I think we believe across our business is actually both supply chain and mobility, is our ability to drive procurement, and scale and leverage a partner network we have across multiple service lines, right? So we have many partners who do multiple things. They do intra-city trucks, they do car carriers, they do full trucks. You know, the 20 or 25 ton multi-axle vehicles, right? So that partner base is something which is very important. So those are three areas of commonality or synergy, if you may. Like, there are also many areas of the divergence, right? Because the business is more tech or IT and it is services driven. Obviously the asset classes are very different. It's very different. The terms of winning actually are quite different.
We developed a strategy 2-3 years ago, Manoj.
Sure.
Which I think I've shared earlier, to really be very focused on doing two things: driving increased presence in the enterprise segment and driving more supply-driven synergy and margin expansion. That was the strategy we developed before COVID. Of course, COVID happened, so we've actually had to hunker down. Right, in the long run, I think the business is something which still we believe has very favorable macros. Now, it's not operationally, is it, you know, it's not a very significant divergence for us. The business pre-COVID had very good return on equity and it does not consume capital at the cost of the supply chain business. We have a strong independent team which now has been integrated between Meru and Alyte.
That integration is one of the things which has helped drive earnings improvement across Alyte and of course Meru, which I already alluded to. I think in that sense, it's not a distraction, it's a part of our portfolio. I think over a period of time, the board and the management will continue to review what it's, how well it fits the rest of our portfolio. I'm sure the board will take considered decisions on that.
Yeah. No, Ram, my only point was when you are having such a large opportunity in such a complex business, so I think your bandwidth can be better allocated by handling the complexity of existing business rather than entering into a Meru kind of business, where other than commonalities of customer, I don't see much synergy. That is my view that I think. Yeah.
Appreciate your feedback, Manoj, and I think it's well noted and I can assure you it's one of the things we debate quite often and discuss quite often.
Okay. Thank you so much. Thanks for taking my calls.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.
Thanks, Ram. My compliments on a very strong growth performance in Q1. My first question is there anything in government's ONDC or this open network for digital commerce for Mahindra Logistics as a 3PL and network services play? Would you be integrating your 3PL with the government's ONDC? The second one, you know, is both a suggestion and a question, that given you speak about Meru's numbers, 2x2, Lords, Alyte, would it be possible to have a slide where you put revenue, gross margin, EBITDA, profit for all these entities? It'll help us appreciate your performance better and save you a lot of questions.
Similarly on network services, freight forwarding, Last Mile, Express B2B, it would be great if you can have some color on these metrics on a slide because you yourself speak about the growing importance of network services in terms of revenue share going forward. My second question is on the strong operating leverage that we have seen, you know, with the top line growth during the quarter. Your thoughts around that and is there more scope for operating leverage-led margin gains? Thank you.
Sumit, let me just do this first one. I think we are obviously continuing to work on, I would say, the open logistics network interfaces, not just ONDC, right? But unified logistics protocols and what it means and what opportunities it presents us. I think at this stage, while we don't have anything specific to announce, I think you will see more action around that clearly from us in the coming quarters. Overall, I think I would say that I think ONDC is a very positive move. You know, in an industry which is very fragmented, I think it provides, you know, stronger accessibility across disconnected customers.
I think, of course, it would be great if ONDC also drives better standard setting in service levels, which as you know has been one of the challenges in our country is that as an unregulated industry, logistics carries very low standard thresholds. That's one of the things which creates a very wide pricing corridor in our industry, right? I'm sure the government is, you know, has got that feedback, and from others as well. Some of the work which they are doing already, I think, like setting logistical infrastructure and so on is having steps in that direction. As far as I think your suggestion is concerned, I think that's very well taken.
You know, we have been increasing the level of information we have been sharing on the businesses, both in terms of market, account wins and so on. This is a split which we'll work on and provide you. I think definitely the entity roll-up is something which we will work on sharing with you, because I think you will be able to clearly see what is standalone versus the roll-ups. Most of the roll-up businesses are very specifically either in mobility or network services. I think that has.
Yeah.
Also partially help you understand your, the third thing which you asked.
Yeah. Yeah, the investor relations team, if they can, you know, send across some of these details that you mentioned, post this call, it'll be very useful.
Yeah, sure. Can you just first just add your last question, please repeat it? I'm sorry.
Yeah. We saw pretty strong operating leverage, you know, even though your gross margins were a bit impacted, but your operating leverage has paid off well. Just want to understand, given the momentum on growth is likely to continue, what are your thoughts on operating leverage and what exactly is driving that?
I think our leverage, we've got two elements of leverage from it. One, of course, is mix. I think we have to look at real gross margin and individual mix and kind of roll it up, because when you have large movements in volume, I think it's an impact. If you actually look at what happened year-on-year, I think the transportation business grew by INR 207 crores, while the warehousing and supply chain business grew at around INR 75 crores or INR 80 crores. Even though the growth in supply chain and warehousing was faster in index level, obviously the major growth of our transportation
Yeah.
Was 2.5x the growth of warehousing. You see that, you know, play out in the gross margin level. From an operating leverage perspective, I think our big leverage is actually in the warehousing facilities we operate, Sumit. And there it's really from two things. It's really from the productivity of our workforce and how much more we can do with less really by using automation, by doing more mechanization, right, by improving dexterity of our employees. And the second one is how we can design facilities to actually run far more throughput. Right?
Yeah.
That allows us to condense the space we require for operations and leverage make the yield per sq ft a lot better. Those are things, Sumit, we have been working on in the last.
Yes, yes.
Six months. I think those remain as opportunities for us, right? That's part of the point we have talked about earlier. That said, I would also say that in an inflationary environment, your supplier power is always higher, right? Right. We have the challenge of being in an environment where it is inflationary on the cost side and slightly inconsistent at demand side. Right. Therefore, you know, the leverage often is hard to monetize fully, right? And a lot of that leverage is what's going into the view. My comment earlier to Manoj, I think, that we are confident that despite some of these things we'll be able to hold our margin. Right. So that.
Yeah.
There's work to be done. That's kind of where I would probably sum my thoughts on it.
No, that's very useful. Thank you. Just one last point, you know, on freight forwarding. We see that seaborne freight rates, et cetera, have all come off quite sharply of late, and they're actually down on a year-on-year basis also. Does that have any implications for your freight forwarding business in terms of margin performance going forward?
Obviously, I think softer does affect our revenue, right? I mean, you know.
Yeah.
The same thing happens when fuel prices go up. I think that is an headwind, if you may, from a revenue top-line perspective.
Yes.
Not so much from margin, percentage margin perspective. I would also say that, I mean, our own forecast is that last quarter we saw some softening on ocean lines on prices on specific lanes, Sumit. We expect that towards the second quarter, we actually think firmness will start coming back, right, on lane pricing. I don't expect right now. Expect it to be a tactical issue for the year and not really a very strategic issue.
Got it. Thank you so much, and wish you all the best.
Thank you. The next question is from the line of Sachin from UTI Mutual Fund. Please go ahead.
Hi, sir. Two questions from my side. One is more to do with this non-stockyard warehouse space that we have. Now, how do we understand per square feet revenue profile or margin profile of this business, and eventually the ROCE profile of this business? That's the question number one. Second question is more to do with, like our parent, which follows a strong discipline about some of its businesses, where eventually it wants most of its business to graduate towards high ROCE businesses. Now, what's our thought process regarding some of our subsidiaries and some of the new ventures that we have got into? Will we follow the same approach for them?
Maybe if you can also help us along with this, any capital allocation plan that you have towards them. Just two of them. Thank you.
Sure. Thanks. I'll do the second one first, right. I think first of all, you know, we have clear investment hurdles as a board and all our businesses, whether they are consolidated or whether they are standalone or subsidiary, I can tell you we actually have the same sort of earnings expectations and there is no divergence in that from a governance perspective. Now each of these businesses I think comes off at different levels of maturity. I think what we look at is, you know, what are the earnings at a maturity level. If you look at the logistics forwarding business three years ago was extremely weak on earnings, right?
Today, you know, the business has built scale and has built a value proposition and now actually has an ROE which is actually favorable, more favorable than many of our other businesses in the company. I think we expect the same curve to be followed in each of the subsidiaries, because they're just divisions of the company, right? The way we operate them. We expect Meru and the mobility business to get into the same thing. I know from a long-term perspective, we expect our investments in Whizzard, our last mile delivery, to actually yield the same kind of returns. 2x2 was a business which was actually getting into that zone in 2019-2020 before the automotive hit happened.
When the automotive decline happened, obviously we saw a significant downtime, right? Then as last year fuel prices increased, that also became a double whammy. We did of course, we have consciously chosen to rebuild, to kind of upgrade all the assets as they are aging, and get the fleet in better shape, which is why there's been a bit of downtime last quarter. The earnings targets are the same, and I would say that from a long-term perspective, you know, that's the expectation, you know, we, our management and our board has, you know, that we actually are delivering similar returns across all the businesses and there's no difference between them.
To your first questions, I think around the way we should look at warehousing, I think that's a great question, especially with AS 116. I think warehousing is, you know, obviously the way we are accounting for it has all changed, right? So first one obviously is a pure gross margin, and typically on vehicle assets which are more than 11 months leases, we are obviously accounting everything under 116, so there is Ind AS 116 charge which is there. So I think the first you have to take is look at the pure gross margin, adjust the Ind AS 116 charge, and then adjust the right to use depreciation, and the interest which those assets are carrying or which is underlying those leases.
I think you will actually then be able to find comparable gross margin in that sense, comparable margins in that sense. Right? Then be able to look at the return on capital employed of that. That's kind of a build-out which has to be done. That we will be doing internally to obviously look at the value of each project actually. Right? That's one thing which has to be done. You have to sort of adjust for Ind AS 116, adjust obviously for the below EBITDA line items, both in terms of all the right-to-use assets. The third way I think to look at warehousing is to look at saying what is the integration value it provides for transportation?
Because I think you have much better control of your transportation and the ability to optimize transportation when you control the nodes of which design the network. Right, because warehousing transport trucks are only plying between our warehouses and from warehouses, right, to customers. The more you can actually control and design the architecture of the warehouses, the more leverage you have on optimizing the way you are able to get transportation and the margins you make on a transportation business. That's what we call integrated solutions. That's the third leverage of the return on equity of warehousing. For example, we invested a lot in Luhari. We have done that because it's 1.5 million sq ft, but it's also a gateway to 30% of India's population or 28% of India's population, right?
What it does for us in terms of being able to optimize outbound transportation from that facility and optimize it is quite significant. Those are three dimensions of, I think, how you would typically want to look at the value of warehousing on a standalone basis and as well as a portfolio. I think if you want a little bit more color on how we look at it, I think if you reach out to our investor relations team and Yogesh, they can share some of that with you.
Sure, sure. Thank you.
Thank you. The next question is from the line of Pradyumna Choudhary from JM Financial. Please go ahead.
Hi, sir. Thank you for the opportunity. I have two questions. The first one is related to the B2B Express business. You spoke about how for the next couple of years we'll be in investing phase here. I just wanted to understand where exactly would we need to invest and, like, how exactly are we planning to scale up and become amongst the bigger players here? What exactly is the value proposition in the B2B Express business compared to our existing 3PL business? This is the first question, and the second one is more on the competition in the logistics space. We see that recently a listed peer which is strong in the B2B Express space, they mentioned that they might want to consider entering into the 3PL space sometime in the future.
We've had a very recent listed peer which is strong across all the players across most of these spaces, and you're also talking about going big in the B2B Express space. How do you see the industry panning out in the future? Yeah, these are my two questions.
Yeah. Thanks, Pradyumna. I think just a couple of things. Those are very broad questions, but just from a competitive perspective, I think almost everybody in the industry in some form is multi-service. Right? I think almost all logistics firms are either a 3PL company or a network services company, right, or a combination of these. At the end, most companies that scale have that intention of having multiple services there. That's true in India as well as globally. Even if you take a pure parcel company or an express company, they actually will have a supply chain services business, a freight forwarding business and a few other things, right? I think that's the nature of the industry.
I think the key thing which differentiates it ultimately is saying what drives, what's the ability to convert that, whatever you are stating to actually value from a client perspective. How does it actually drive margins and margin expansion for the business. Now, for us in the B2B business, I think there are two, three things which are there. I think the first one is, you know, we are very focused on, you know, on what I call, you know, service quality, which means that we are very focused on ensuring that we deliver products safely, properly, on time. There are no damages to it, no shortages, right, no interchanges and so on. That service quality piece is a big part of our focus and our proposition.
The second part of our proposition is our integration, because, you know, if you are often using an express service to move material in and out of a warehouse, right, which we are already operating today, right? So that saves the customer a lot of headache because then they actually have to hold only one company accountable for both pieces. Otherwise, today what they are doing is they are saying, "I'm gonna have to hold company accountable for the way warehousing does." The handover is something they have to manage, and then they have to hold the express company accountable for the second piece.
Our second part of the value proposition is the ability to both bundle and integrate this for our clients, which gives them more convenience, more accountability from the network, allows them to get better cost control and transparency and visibility around costs. That's the second part of our value proposition, which is there and that's kind of what we've been trying to drive to grow our express business. The express business is a bit different from the 3PL business. The 3PL business is more like a project business. We design a solution, we sell it, we build that solution, and we start building that solution after we win the contract, right? If, you know, we win a contract and if it's a multi-client facility, we'll build out that solution there for them.
The network business is, the B2B Express business is a bit different. You actually have to run the network whether you have demand or not, right? You actually have to expand to pin codes, right? You have to actually build, you have vehicles, you know, plying consistently between these local hubs. You have to build out hubs, and you have to then have a proper scheduled operation between these hubs to actually get, you have to get service levels up. The investment we are making in the business is really that, is the expanding the network, you know, running, you know, building better throughput and network accessibility, and then investing in technology, which will actually help put all of this together, right? You'll see most express companies have an investment curve before they actually hit maturity.
What I can tell you is our express business has, like all our businesses generally, positive unit economics. We have investments obviously on the utilization of the network and how we are building it out. All our transactions, you know, we do maintain a pricing discipline that we don't do business, you know, below unit margins at negative unit margins. Right. Now it's really about how we scale up and how we build a network to support that scale.
Okay. Okay.
I hope I answered.
Yeah. That's really helpful. Thank you.
Thank you. Ladies and gentlemen, this will be the last question from, for today, which is from the line of Pranay Roop Chatterjee from Burman Capital. Please go ahead.
Hey, good afternoon, everyone. Am I audible?
Yes, Pranay, you are audible.
Great. So I had two broad questions. Firstly on margins and second is on revenue growth. On margins, Ram, firstly, I think a previous participant had requested some incremental information on some of your new businesses, especially given freight forwarding has become pretty big now. So it'll actually help us understand margin trajectory. Because right now, I've collated around like 8 points which have affected your margins in the last 2-3 quarters, and there are many moving parts right now, so it's very difficult to, you know, figure out where the business is heading. For example, I think the fundamental thing is that what our understanding is warehousing gross margins are higher than your external transportation margins, which are slightly higher than your Mahindra & Mahindra transportation margins.
You also have operating leverage coming into play basis volumes. The staffing issue is temporary, so we can discount that. You have something going on with 2x2 logistics as well, which impacted last quarter and, like you said, this quarter as well. Freight forwarding you had mentioned is EBITDA accretive at around 5.5%, so that is one aspect. Express and Last Mile is dilutive, understandably because last mile is at an early stage. You had some impact of Bajaj as well, and finally fuel price impacts, right?
Again, I don't want you to discuss all of these points, but given what you see right now in all these criteria, in the next 2-3 quarters, what can we expect in terms of the direction of margins? Because it's extremely difficult to, you know, predict based on all the levers, none of which are actually, you know, in the public landscape.
Okay. Pranay, thanks. I think you've done a great job. I must first compliment you on capturing, you know, all the puts and takes of our business as we keep shuffling portfolios and, you know, moving stuff, right. I understand a little bit of the ambiguity which is there in some of the stuff. I think as I mentioned to the earlier question, we will. I think that's from Sumit and Axis, we will try and put out, you know, deeper clarity on these, on the businesses. Now, in terms of, I think broadly how I would look at in terms of outlook, I expect that we will not really.
You know, the Bajaj thing which we had said earlier on, and I think startups in general, which we had called out, you know, Bajaj is the largest part. I think that's gonna be there. A little bit of it will carry over into this quarter, but otherwise that program is stable and there's no burn on it in that sense. We're gonna start focusing later in half of the year on expanding those margins out as per our kind of solution design and plan. I think forwarding, I think the network and 2x2 was a temporary issue. It was a conscious choice for us to build out the assets.
Therefore we don't expect this issue to continue through the third, second quarter of this year, right? By second quarter, all the fleet will be deployed, so that's a temporary thing, which is there. I would say that forwarding and then I think last mile and B2B are investment areas. I think once we show you that picture, I think as we probably discussed earlier, you will be able to do a better. You'll be able to better understand how that whole modeling, how the constituents on the chessboard stack up. I think broadly, I think from a margin profile perspective, we have said that, you know, the FTL transportation business has a lower margin profile than our warehousing business.
The pure warehousing business has a lower margin profile than our solutions business, right? It's kind of a margin ladder. However, the one thing I would point out is that I don't think it would be inappropriate, you know, Ram, for you to say that the Mahindra or transportation business has lower margin than non-Mahindra transportation business. As you had said earlier, I think to you as well, Pranay and others, is that we essentially, you know, bid the pricing based on account, right? If we have two customers, if there's a Mahindra movement from Haridwar and somebody else's movement from Haridwar, which is roughly the same, the pricing they'll actually get is roughly the same, right? It's driven by service line and volume density. It's not an overall thing that Mahindra is lesser than non-Mahindra.
I think it's driven by service line, lane, et cetera, right? As I said, we will put, we will call out and do the categorization of it and share that and try and make an attempt to share that in the coming quarters so you are able to look at that broadly. From an overall outlook, I expect volume to be strong in the second quarter, right, to maintain trajectory in the second quarter, both in terms of from an outlook perspective. What we are seeing right now is, you know, generally, the same headwinds and tailwinds we saw in the last quarter are persisting in this quarter.
I do believe that there is some uncertainty in demand as we look at, you know, going out because of inflation and because of general softness. This year's August will be very important. August peaks and demands are fairly indicative of, you know, how the industry will move, and therefore we will have to, you know, see how the peak will happen. Peak Q3 is normally an important quarter for us in terms of growth, so there is some moving parts there which look optimistic, but we can't confirm that we have a great Q2 outlook, right, in terms of tailwinds right now. Right now things are holding up, and I think we are optimistic about Q3 and Q4.
As I mentioned earlier, we have had an ACV annual contract value in terms of non-M&A model wins around INR 200 crore in the first quarter, which is very robust in terms of our pipeline, which will be executed through the rest of this year. That's something which we are hoping to sustain from a win perspective.
Got it. Thanks for that. Second question I think you answered partially.
I think it's the same things you asked, probably. I didn't do them in exactly the same order, but as you say.
No problem. On the revenue growth, I think you already partially answered that, but I'll just structure my question anyway. My question was more along the lines of, in your annual report, I think it has already been called out and discussed that, you know, that 20 million sq ft incrementally, within the next 36 months. I think you're already lagging it. My question is slightly different. When you did this math, right, that you need 20 million sq ft extra, you also had your vision in mind, the INR 10,000 crore vision. You must have done some demand forecasting at that point of time. Now, what my hunch is that the demand that has actually played out is actually materially below what you would have forecasted at that point of time, you know.
Because of which, the additions is not much, which obviously makes business sense. If there is no demand, you won't add network. Now, incrementally, in your opening remarks, you also mentioned that everyone is focusing on network efficiency rather than expansion, which is also a sign of things slowing down and people looking at the cost more than the revenue, right? The larger question here is, do you see a change in the larger warehousing story temporarily, or is this a blip of four, five quarters that you are seeing?
I think it's a blip. I think what we really said is that I don't know if we said three years. To be honest, Pranay, I'll just check that again because it's not resonated with my memory of the annual report. I don't wanna say you're wrong, so let me just check that. I did think. I think you're right. I think we said that we have to add, you know, 17 million sq ft-20 million sq ft, I think in other forums as well, to support that vision for growth, right? That would partially come at a cost of the stockyards going down.
That is still pretty much intact, I would say, in terms of the fact that we had to build a network to support that growth, Pranay. I don't think that fundamentally changes. Obviously, as we improve yields on our warehouses or if demand softens in specific bits and pieces, we may see that number moving around. Our intrinsic desire, and I think I've said it again and again, is that we don't see warehousing as the end. We see warehousing as a means to an end, right? The end is, you know, providing more value-added solutions for clients and building networks and not just doing transportation, plain vanilla transportation or warehousing. Building capacity is a very important step in doing that, right?
Which is why we have done it last year and this year despite the, you know, the Ind AS 116 impact. We continue to make the investment. I don't think that will. That direction fundamentally remains unchanged. There are some blips which will happen along the way, right? Some of it, as I said, is not just demand. Some of it's also been we've gone through a phase of recontracting and holding our contracted prices, or almost holding our contracted prices on many of our facilities because commodities went up very sharply, right, in the last two, three quarters. So many of our partners, right, wanted to re-discuss that. I think what we said is we want to build 12 million sq ft of build-to-suit warehouses by FY 2026.
We are at around 3.5 million sq ft now, so that's. We've got 3.5 million sq ft. 2 million sq ft is coming up this year. 2 million sq ft more is under construction or, you know, that has been contracted. You are kind of in that exact range. What we'll do is we'll take this and come back to you. I think, I mean, our investor relations team has your contact, so I will get them to.
Yeah.
Call that out with some clarity.
Got it. Just to close out the call, I think I had one question for Yogesh. I'll just drop it in anyway, and I'll reach out separately. If you look at it on a year-on-year basis, right, your non-stockyard space, which is basically the space, the yield space, has gone up only 14%, around 11 million sq ft to around 13 million sq ft. But your depreciation, quarterly depreciation year-on-year has gone up around 43%, right? It came in at around INR 40 crore in this quarter. Just want to understand what is causing this also. I understand the Ind AS charts.
What I just wanted to clarify is, with the space growth, why is depreciation growth outpacing space growth materially? You know, essentially, that's the question. Otherwise, I'm done at my end. Thanks a lot.
Okay. I'll let Yogesh probably answer that specifically. I think the way the leases work, I think we've said before, is how the timing within a quarter of the leases come in. Pranay, probably since you've already said you'll reach out to Yogesh, I'll let him just take that up with you separately. All right.
Okay. Thanks a lot.
Thank you. As that was the last question for today, I would now like to hand the conference over to the management for closing comments.
Thank you all for joining us here today. I hope we've been able to answer all your questions adequately. If there are any other questions, you know, please feel free to reach out to SGA, right, our investor relations partners or our leadership team. I'm sure we'd be happy to provide you more and adequate details around those queries. Thank you once again for your continued interest in Mahindra Logistics, and I wish you all a safe day and week ahead. Thank you.
Thank you. On behalf of Mahindra Logistics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.