Ladies and gentlemen, good day and welcome to the Mahindra Logistics Limited Q3 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shagun Jain from Societe Generale. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and thank you for joining us on the Mahindra Logistics Limited Q3 FY2023 Earnings Conference Call. We have with us Rampraveen Swaminathan, MD and CEO, and Mr. Yogesh Patel, CFO of the company. I hope everyone has had a chance to view our financial results and investor presentation, which were recently posted on the company's website and stock exchange. We will begin the call with opening remarks from the management, followed by an open forum for Q&A. Before we begin, I would like to point out that some statements made during today's call may be forward-looking in nature, and a disclaimer to that effect has been included in the earnings presentation that was shared with you all. I'd now like to invite Ram, the MD and CEO of Mahindra Logistics Limited, to make some preliminary remarks.
Good afternoon, everyone. thank you, Shogun. Thank you for joining us and welcome to our third quarter earnings call. I first hope that you had a chance to look at our presentation, the financial results which are available on the stock exchange and our company's website. As always, we'll cover some highlights in the external environment, some operating commentary on the businesses, recent customer acquisitions and our segment performance before I share some highlights of financial performance on a standalone and consolidated basis for the nine months and the quarter just gone by. I am joined today in addition with Yogesh, by several other members of our leadership team, including Sushil Rathi, who's our Chief Operating Officer, for transportation and freight forwarding.
Ankur Singhal, who leads our e-commerce business and our last mile delivery businesses, and Mansi Nagri, who is the head of marketing and communications. Let me just jump in quickly, starting with an overview of the logistics sector itself. As you all know, the government has set up a goal of making the country a $5 trillion economy in the next few years, and cost of operation remains a fundamental challenge, and one of the biggest stumbling blocks, in that is the high cost of logistics. When compared to other advanced economies, India at 13%-14% of GDP in terms of logistics cost is much higher, making business operations less competitive. India is also an aberration when it comes to multimodal logistics infrastructure.
The global average for road transportation is 25%, and 60% of cargo in most advanced countries and other nations is handled by rail. On the other hand, only 30% of our country's logistics movement happens by railways, while road accounts for between 60%-65% of our transportation requirements. Our waterways have a nominal share of less than 5%, and these are among the factors which drive the higher logistics costs, which ultimately impacts the margins and competitiveness of the Indian industry, both domestically and in terms of exports. Critical enabler which the government has obviously identified is the need to automate logistics. There is a need to integrate automation and similar technologies, in the logistics sector, right, in a far more comprehensive way.
This will help truckers especially and warehousing other infrastructure improve their overall efficiency and price competitiveness. Furthermore, there's a strong need to improve the workforce's skill set and access to cutting-edge technological solutions. The unorganized sector and its players account for approximately 85% of the Indian logistics market. A great example of this is the trucking industry, where you know, 85% of the industry is or 80%-85% is operators who have, you know, five or fewer vehicles in their fleets. This prevents them obviously from getting economies of scale or, driving more towards newer technologies.
The National Logistics Policy in some part or in great measure was released by the government, with an attempt to address some of these problems and other problems associated with this sector. This policy will help bring down the logistics costs by 5% of GDP over the next five years, bringing it down from around 13%-14% to around 8%-9% of GDP. To achieve this objective, the policy identified four major steps that must be implemented through the CLAP, which includes integration of digital systems, unified logistics and trades platform, ease of logistics, and a system improvement group. The policy promotes economic growth and the creation of employment opportunities in the sector and is an important step towards making India's manufacturing sector as well, more competitive globally.
In the context of some of these policy changes, I think it's been heartening to see that the budget announced yesterday by the Honorable Finance Minister extends the policy framework. You know, we obviously welcome the budget as it focuses on sustainable growth and infrastructure development. Announcement of setting up of urban infrastructure development fund for Tier 2 and Tier 3 cities is likely to provide a much needed boost for smoother and faster logistics transportation and will further ensure greater connectivity in these locations. Identifying 100 critical transport infrastructure projects will have a positive impact and a multiplier effect. Last and first- mile connectivity. The announcement of 50 new airports and associated infrastructure will enhance regional air connectivity across the country.
The highest ever allocated capital outlay to the Indian Railways will hopefully add to greater and better connectivity between different points of the country, and easier and faster freight movement. I think all of these augur well for the sector in the long term, and we look forward to further policy initiatives that support those announced by the Finance Minister yesterday. Let me talk a little bit about our key end markets, especially in terms of the quarter which just went by, and I'll begin, as always, with the automotive industry. Overall, the auto industry has experienced far lesser supply chain disruptions in recent past, as we have seen increased availability of semiconductor chips and related components. Whereby passenger vehicles have continued to demonstrate strong traction, especially in SUVs.
Commercial vehicle and two-wheelers are still 27% and 16% lower than the expected 2018 volumes. The proportion of passenger volumes comprised of SUVs is increasing steadily and is projected to reach approximately 50% in 2022, up from 36% in 2020. In India, the global shift towards electric vehicles has also started playing out, and it is likely that two-wheelers, three-wheelers, and passenger vehicles will see a rapid shift towards EVs in next one to three years. I would say that no announcement by OEMs in that direction. We clearly see that shift already happening in the intra-city cargo space, where there is a precipitous shift towards electric vehicles across all our customers, customer segments.
The recently concluded Auto Expo continues to emphasize the growth of the sector with an increased focus on new products, electric vehicles and hydrogen technologies. During the quarter, our volumes from auto customers, including M&M and other OEMs, showed strong traction, and we expect this to continue going forward. Moving on to the farm sector. The sector's season has contributed to a strong momentum in demand for tractors and farm equipment. The sowing of Rabi crops seems to have progressed well. Currently, total acreage under, acreage covered is more than, not just higher than the previous year, but higher than the average of five preceding years as well. It is anticipated that harvest of wheat and oilseeds will show strong growth.
With increased Rabi sowing, strong good current procurement and expected wheat exports, we remain optimistic of the demand outlook from this sector for our business. During this quarter, we have continued to expand multimodal rail-based movement for our OEM customers in this, in the agri sectors. I'll now move on to the more consumption-driven markets we have, including e-commerce. I'll begin there. As all of us know, I think, sales of online platforms and digital-native businesses have grown exponentially over the last five years, as a result of both increased adoption, policy reforms and, well, in some ways, the recent pandemic as well. While long-term macros remain very positive, the recent festive season did not demonstrate the anticipated growth we expected in the sector.
There were lower volumes in most categories, despite higher value of merchandise. Large capacity additions in the past 24 months have also created a capacity overhang, driving a focus around capacity optimization, especially in mid-mile, by most of our customers. As a result of the consolidation and slower growth, there is a reduction in network scope, or rationalization of sites. During the last quarter, we had very few temporary, flex or pop-up sites, as we call them. This sluggishness, we expect will continue through the next few quarters, till the next festive season or this Diwali season, in late 2023. In terms of FMCG, durables and pharma, demand for these industries remain fairly stable.
Demand for durables was a bit slower during the quarter after the festive season, largely because of the impact of high inflation on consumers in rural areas. There has also been higher pressure on pricing due to robust competition, and commodity price corrections, with probably the exception of cooling. Refrigeration cooling prices have gone up with recent regulatory changes around the BEE ratings. Since real estate sales and capital expenditures in the industry have remained robust, some segments like wires and cables have continued to enjoy strong growth. FMCG demand growth has been muted, with an increased focus from our customers on optimizing and consolidating their networks. Demand from pharma and apparel however remains strong and positive with continuing category growth and an increased shift towards offline shopping.
Overall it's been a mix of quarters. I think the tale of two stories really. Automotive and farm. Manufacturing, which have been positive. Some other sectors which has continued to see volume growth, but are seeing also the impact of recent capacity additions. In terms of what it means to our business, I'll cover a little bit of it by each of our key segments, and we'll begin with the third-party logistics business. As you all know, third-party logistics business is primarily operated out of a holding company, which is Mahindra Logistics. During this quarter, we witnessed robust growth in auto and manufacturing, which offset for some slowness in some of the other segments, especially e-commerce.
Our continued strategy over the last few years to focus on end market diversification has been a positive driver. The last couple of years we saw stronger growth in segments like e-commerce, where auto was slow. The more recent past, the recovery in auto is now allowing us to continue to drive revenue growth across these markets. We remain focused on the diversification of these segments and also on increasing the share of solutions, which is now more than 20% of our total TPL revenues. Continued focus on cost optimization and generally uptake in gross margins in this segment, both sequentially and on a year-on-year basis. During the year quarter, we continued to expand our fleet logistics portfolio, especially focused on multi-client warehousing.
The total warehousing space, excluding stockyards, was up 10% sequentially during the quarter at 15.3 million sq ft. Over 20% of that capacity is now approximately 20% is carbon- neutral, net- zero facilities. During the quarter, key wins included inbound logistics for a leading global commercial vehicle manufacturer, inbound- to -manufacturing logistics solution for the leading luxury car manufacturer in the country, expansion of our temperature- controlled warehousing and fulfillment for one of India's leading pharma companies, warehousing and distribution solutions for leading personal care product, and launch of food, and vegetables distribution for one of the larger grocery retailers in the country.
Despite some of the downturn, we continue to see an expansion, right, across various segments in terms of demand, for 3PL logistics services and solutions. I'll now talk about freight forwarding, which is our second-largest segment. Freight forwarding is the largest part of our network services segment, as we call it. It has been a quarter of correction in this segment. Global slowdowns and capacity overhangs have resulted in sharp pricing corrections, with ocean prices for both export and import, for many lanes for both 20- and 40-foot containers falling by as much as 70%-75% in the last two months.
Despite our focus on volume growth, we have not been able to offset this pricing correction in the quarter which just went by, and as a result have seen a sharp correction in revenue, and profits for the quarter. However, we see this as a short-term correction and remain confident of volume growth in the next six months, which should drive a recovery in the business to historical levels. On a positive side, I think our profitability as measured by gross margin % remains strong, and we continue to have strong pricing control and discipline in the segment.
We continue to optimize cash flows in the segment with a strong focus on collections, and that's reflected in the overall, the debt level which is used to fund the business. The B2B Express business. During the quarter, we saw the completion of the acquisition of the B2B Express business of Rivigo through a subsidiary called Rivigo SPL. In the first 60 days of the acquisition, our focus has been on driving a smooth transition, and driving and improving customer service levels, which we have achieved without any significant disruptions. Almost 90% plus of the customers have been transitioned successfully, and we've been able to improve our service levels on most of the critical lanes.
We continue to operate the businesses in MLL and Rivigo SPL independently, we are currently working towards network integration, transport optimization, and fully leveraging the technology across the B2B Express business. In the quarter which just went by, the business did report a negative EBITDA, we anticipate by the end of FY 2024 the business will be positive. As we stand today, we are on track to that forecast which I've given earlier. In the first quarter, as I said earlier, we did see anticipated financial cost of acquisition and losses from continuing operations of the business. Commencing this quarter, we will start driving optimization in the network and the flow of that through should continue in the coming quarters.
The acquisition significantly strengthens our integrated logistics portfolio and significantly expand our technology stack, our network coverage to over 19,000 pin codes, with over 12,000 pin codes being serviced directly. Moving on to the last mile delivery business, which is the smallest part of our network services segment. The last mile delivery business grew by 12% year- on- year. We continue to expand in food commerce and other offerings such as same-day delivery for multiple clients and invest in expanding our micro-fulfillment capabilities and tech stacks. We have continued focus on driving margin improvement in the segment. During the quarter, the e-electric vehicle services grew further with a total fleet of approximately 1,200 vehicles in 16 cities across the country. Moving on to financial performance.
If we begin the consolidated financial performance for MLL and all its subsidiaries together, revenue for Q3 FY 2023 increased by 17% on a year-on-year basis to INR 1,313 crore. Our supply chain management segment, which includes both TPL and network services, contributed 95% of our overall revenue. The mobility business contributed around 5% of our overall revenue. Gross margins on a fully consolidated basis stood at 9.9% in Q3 compared to 9% in Q3 of FY 2022. EBITDA for the quarter stood at INR 16.3 crore, up from INR 48 crore for the same quarter last year. Our PBT on a fully consolidated basis is up 11% from INR 3.2 crore last year to INR 3.6 crore.
Our PAT was down marginally from INR 1.2 crore last year to INR 1.1 crore. The consolidated numbers obviously reflect the impact of the consolidation of the Rivigo acquisition. Given the impact of that, let me also share the numbers for the business without the impact of acquisition. Without the impact of the Rivigo acquisition, the revenue for Q3 FY2022 on an organic basis increased by 13% on a year-on-year basis to INR 1,285 crore. Gross margin on a fully consolidated basis stood at 10.5% in Q3F23 compared to 9% for the same quarter last year.
Our EBITDA for the quarter stood at INR 77.2 crore, up from INR 48.2 crore in Q3F22, up 60% on a year-on-year basis. PBT on a fully consolidated basis is up 4.5 times from INR 3.2 crore last year to INR 17.9 crore for the quarter just gone by. Our PAT, without considering the impact of the acquisition, was up from INR 1.2 crore to INR 12.1 crore for the quarter just gone by. As we move forward, I think our focus strategically remains the same.
We are focused on long-term growth and scale across all our businesses, and driving together a stronger portfolio of technology-enabled integrated logistics capabilities, which will strengthen both our TPL business, diversify our service lines across freight forwarding, B2B Express, and last mile delivery, and involves, you know, reimagining the way we deliver mobility services. In the short term, obviously, I think given that we are in volatile environment, we are extremely focused from a cost improvement perspective, and a key area of focus remains the speed of integration and optimization of our B2B Express business. With that, let me open the floor for questions and answers.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to withdraw 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 Amit Dixit from ICICI Securities. Can we proceed?
Yeah. Hi. Good evening, everyone, and thanks for taking my question. I have two questions. The first one is on essentially Rivigo's contribution. Looks like it contributed negative 8.5 crore of EBITDA in this quarter. How do we see it improving ahead? I know you said that the network services would get in positive territory by H1 of FY 2024. Particularly talking about Rivigo, how do we see Rivigo's EBITDA scaling up maybe in the next quarter or in, you know, H1 FY 2024? If you can throw some light on this.
Amit, sorry, thanks for joining. Do you wanna ask both your questions and I'll answer both of them together?
Okay. Sure. The second question is essentially if we look at other expenses, it's increased sharply. Maybe there are some, you know, integration, one-time integration expenses also built in. If there are some one-time expenses, is it possible to, you know, quantify them? Why our interest cost also surged up significantly this quarter, and what the normalized level could be?
I'll take the first one asked, Yogesh, to just answer the second one, Amit. In terms of the Rivigo acquisition, I think as we had said earlier as well, I think we've acquired a business which is approximately right around at run rate of around INR 350 crore of annualized revenue, right, on NTL basis. And we really. That is the business which we acquired. Obviously, we had prior to this had our own express business, which was around INR 150-160 crore in terms of annualized revenue.
How we see this playing over the next couple of quarters, our goal is to, you know, reach positive EBITDA by the end of the first half of the coming year, is really that focus on four things. The first one is, on driving, you know, consolidation in the network. Obviously, by combining both the networks, you know, volumes of both the networks together, we expect to be able to drive far greater throughput across the entire network, and that should actually reduce our cost per ton from an operating cost perspective.
The second lever obviously is driving far greater consolidation on the transportation side, right, with the combination of the volumes and the redesign of the network, we expect to be able to reduce our line haul costs while maintaining or improving service levels and also drive better optimization of feeder, right, and pickup and delivery routes, right, for our customers. That's the second big lever which of optimization, which is also will drive a substantial amount of the cost per kilo level. Both the network costs of operating the network sites and the processing centers and hubs, as well as the transportation costs on line haul and feeder is approximately 90-95% of the variable cost per kilo.
That's where we see significant levers for improvement, especially driven by the fact that we are combining a substantial amount of volume in a very short period of time. The last, the two other levers of improvement, one obviously has been driving a lot of, you know, productivity improvement, right. The business comes with a strong technology stack, which we think is well deployed, would allow us to drive operating productivity, you know, quite significantly across the board. Lastly, you know, we are looking at driving far better optimization, utilization and overhead level, as the business becomes part of a much larger business, and that's the operating model we have at MLL for all our business segments.
Like, collectively, we think that we will be able to bring down that EBITDA gap which is there, right, and by H1 FY24, we should be able to see that getting normalized. From a longer-term perspective, beyond the short-term issue of kind of coming on the whole, if you will, I think the long-term opportunity around Express and Power Structural remains fairly significant. I mean, as a segment, it's growing at medium to double digits, right. We do expect it to have, you know, medium to mid-teens. We do expect it to have, be able to, grow to an mid-teen or high-teen gross margin level as a business and therefore, we expect that it'll be fairly significant at a segment level alone for the business.
In addition, it also provides us the ability to integrate Express along with the rest of our offerings as we try to build end-to-end and integrated solutions for our clients. That again, I think is a runway, Amit, and obviously, Hadi will share a little more detail probably, you know, on a more specific conversation. For the second question around your interest costs and other expenses, I'm just gonna hand over to Yogi to try and take that. Hi, Amit. Amit, on other income what you mentioned on a console basis, this is item what we have in terms of we concluded the assessment of one of the years from the income tax authorities, and that kind of earned us the assessment order, which includes a refund and interest thereon.
That interest has been accounted for in the quarter gone by. That's kind of additional amount, which is INR 2.6 crore. This, just to mention, is the amount of interest accrued till the amount mentioned till the date of assessment order. We are yet to receive the refund in absolute terms. The interest up to the date of refund when we receive it would have to come in in the next quarter as we receive the money as well. In terms of expenses, there aren't any, you know, significantly different one-timers to be called out separately other than, you know, smaller expenses or the expenses come with respect to closing of the acquisition transaction would have been there.
This is what we can consider a normalized rate now, the other expenses that you have reported in this quarter?
That would be appropriate, yeah.
What about interest cost? It also surged in this quarter. Does it have to do with, you know, some, well, the increase in working capital or, you know, the acquisition-related debt you might have taken or something like that?
Yes, Amit. The interest, I mean, basically the acquisition which we made for Express business was done with cash disbursement. There was borrowing was done for the entire consideration what we paid. That adds to the borrowing and the interest cost for that comes in the console as well. If you see the, I think in the narrative that you'll see that your interest costs are up from INR 1 crore in the same quarter last year to INR 1.6 crore this quarter, the quarter just by. All that increase really is just the cost of the on account of the debt we borrow, the leverage we've added to the balance sheet to fund the acquisition from Rivigo.
Okay. This would be the peak debt level, and from here we will see interest cost gradually going down as you start repaying the debt.
From an organic basis, I think that would be a good assumption. Right. Obviously, on organic basis. Apart from that, I think from a normal operating cost, operating basis, I think there's been no real significant change from a working capital perspective, apart from seasonal changes. You know, it is a festive season, so normally it's a more back-ended season, Amit. Therefore, we do have slightly higher working capital in this, but that's something which normally we could also be here.
Okay, great. Thanks for the elaborate answers, and all the best.
Thank you.
Participants are requested to kindly restrict your questions to two per participant. The next question is from the line of Alok Deora from Motilal Oswal. Kindly proceed.
Good afternoon. Sir, just had a couple of questions. First on Rivigo. This INR 45 crore revenue which we have booked, that would be for how much period or during the quarter or it's like for the entire quarter?
Hi, Alok. Good afternoon.
Good afternoon.
I think that's approximately 6 weeks of revenue. One and a half month. A little bit more, but roughly in that range.
Okay. Okay. Okay. If we annualize it is nearly around INR 360 crore, is it?
Yes. I think on a LTM basis, I won't go into a forward-looking annual number, but on an LTM basis, it's in the INR 350, INR 360.
Okay. Because when we had acquired, we had given some data that it's making revenue of nearly, INR 370 odd crore. So it's kind of not really growing on a YOY basis.
It is agreeing, and I think. Anil, I think the thing obviously, we acquired the company, they have not been really in a growth phase for the last 12 months.
Right.
Right. Therefore we value the business on that basis. Right. That's, I think the revenue is in the INR 360-INR 370 range. I think we acquired the business and we have said that we have a combined business between both around INR 550 crore. That's roughly where our overall business is. I think even now when you adjust for some PNL, maybe if you adjust for seasonality it's roughly in that range.
Sure. The EBITDA margin or, you know, the numbers which we have reported in Rivigo that maybe EBITDA loss of 20% or so. At least in the fourth quarter, that should kind of continue, or it could start improving from the fourth quarter itself.
I think as you know, look, we don't give guidance in general, but I think over the next couple of quarters we should start seeing a strong improvement. I think our focus in the first 90 days has been to ensure that we are keeping the network operating smoothly. As you know, in the past, there have been customer concerns around the transitions itself. A big focus is ensuring that the transitions are all smooth, and I think we accomplished more than 90% plus. In the lead up to the acquisition, there were obviously some challenges around service levels, that's something we have focused on correcting. First 90 days has really been about ensuring that and onboarding the Rivigo organization into the MLL family. I think that is now...
We are now past that, and we're now in the process of implementing optimization. It's hard for me to timestamp a monthly view on that, but I would say over the next 12, 18 to 24 weeks, obviously we should start seeing strong amount of those improvements coming.
Sure. Another reason actually I was just asking is because we have seen, you know, other similar businesses like, you know, they are also looking at significant restructuring, like if we see Gati or if we see, you know, Spoton. Just wanted to understand how whether we could also face some challenges here, you know, where we are currently doing 20% EBITDA loss and we are looking to move into, you know, a break-even zone. Could that take slightly longer than what we anticipate?
I think this is a company, I mean, we acquired it by design at this level, I would say, Anil, for lack of a better word. This is an anticipated thing. We have a very clear and structured plan to get it back, not just to breakeven, but to actually grow it beyond that. We are pretty confident as things stand, we are bang on track. Obviously, one can, you know, never predict everything, we are bang on track to delivering what we had given earlier as an indication.
Sure.
Also you can choose to hold it now.
Sure. Sure. Just last question. The interest cost, you know, it's including the lease, it's around INR 15 crore for this quarter. Going forward, this run rate could continue for some quarters, or could it increase or, you know, just some last question on that.
I mean, Anil, very similar to what I told Anuj earlier. I think we expect this on an organic basis to roughly be in this range. Obviously, this will be a peak. There'll be some bumping around based on seasonal working capital issues. By and large, we expect it to be in this range, on an organic basis.
Sure. Sure. I'll come back in the queue for more.
It should start coming down over time, but we don't have a specific guidance on that.
Got it. Got it. Thank you so much, sir. I'll come back in the queue for more.
Thank you.
The next question is from the line of Vikram Suryavanshi from PhillipCapital. Kindly proceed.
Yeah, good evening, sir. One thing I think on this non-Mahindra growth or particularly Fullert warehousing growth has been a bit muted this quarter. Can you explain on that side?
Yeah. Hi, Vikram. I think as you're seeing there probably from our slides, you know, our revenue from non-M&M supply chain did show a marginal decline in the quarter. I think that's down, if I remember right, around 2% on a year-on-year basis for the quarter.
Right.
I think a substantial part of that obviously has come from two big sources. One obviously was a sharp reduction in the freight forwarding business, as we said earlier on. If you look at that, I think that decline mainly because of pricing correction. Indexed for that obviously we had growth, right? Freight forwarding revenues were down by nearly INR 64 crore on a year-on-year basis. Adjusted for that, I think you're actually seeing the business grow. That said, even adjusting for that it is off the high teens growth which we have generally maintained in the last few years. I think that is a reflection of some of the slowdown which I spoke about on e-commerce and some of our other markets.
I think we are seeing, we have seen strong uptick in the automotive, and the manufacturing end of the business. I spoke about some of the acquisitions earlier on. I think we will see this getting reset, somewhere in the second half of the first quarter and of next year as some of these new projects get implemented.
Got it. If you look at the lots or, particularly express side of the business, obviously we have seen sharp correction in container freight rates and all that has impacted. Even if you factor some volume growth, is there pressure on pricing also or sorry, profitability also? Is it seeing that impact of the global slowdown, in competitive environment, you may price something?
Well, I think there are. I mean, broadly, I think obviously the market of the forwarding business has seen a pricing correction, and there are some consequential challenges in on that. You know, we have been able to get back to volume growth, I think, on everything except on most of our sectors, especially on air, import and export, and the ocean export side, on the ocean import side, sorry, I think we are back to gaining strong volume growth. Therefore, I think the volume growth is what will start covering us our recovery back. Right. We should see that scaling up over the next coming quarters.
Just as a reminder, if you look back over the last 3 years, despite this correction, our forwarding business is still growing north of 20%-22% on a 3-year tracker. This is a correction that we think volume growth will offset for that. From a pricing perspective, while there are obviously tactical issues around it, I think you actually see our percentage gross margin level in the freight forwarding business will actually marginally improve on a year-on-year basis despite the pricing correction. That's only a reflection of the balanced mix we have. We've invested in growing some new lanes. It's also a function of the commercial policy and the solution capabilities we provide our clients. I don't expect that to see a significant impact despite this pricing correction.
Okay. Got it. Thank you, Arun.
Thank you.
The next question is from the line of Sumit Kishore from AXIS Capital. Kindly proceed.
Good evening. Hi, Ram. My first question is on the last mile business. When will Rivigo be, you know, consolidated on a line-by-line basis? Will that start happening next fiscal onwards? You know, how does that make gross margins look for last mile and what is the glide path there? Also the impact it will have on depreciation, which has gone up as it is with the Rivigo acquisition as well.
Hi, Sumit. I hope you're well. You know, the Express business, we have an option to take majority, I think. We have the window to take majority, I think through the 3rd quarter of next financial year. We are evaluating the timing of that, the most appropriate timing of it. I don't think we have fixed a timing on it. We do have the option to exercise that choice by the end of the 3rd quarter. As things stand right now, I think we are inclined favorably towards exercising that option. We have not chosen a timing for it because we feel strongly positively about the capabilities it adds to our business.
On a consolidated level, I think the Desert business has roughly the same, has similar gross margins as the last mile, the rest of our last mile business. Obviously the service offerings are more driven towards micro fulfillment and non-large or small pack delivery compared to our existing last mile delivery business which has a balance more towards grocery and larger products. Net-net, I think the gross margin levels are roughly in the same range. I think from a glide path perspective, Sumit, I think as we had mentioned earlier, you know, our focus on last mile is two things. One is, you know, we do want to ensure that we are investing in parts of the business where we have a clear moat or a differentiation.
That's something which we think comes through value-added services, through specific product lines, and through electrified last mile delivery. We continue to probably focus on driving that growth. It is not a revenue-driven approach. We clarified that earlier as well that we are not in a revenue-driven approach in this segment. Maintaining the balance and gross margin I think is important. From a long-term perspective, we think the gross margin potential of the business is around 60%-80%, which we think at the right scale actually will be accretive to the business. As things stand, our business does not have a dramatic incremental impact. The Express business does not have a dramatic incremental impact on the depreciation profile of the company.
Okay. 60%-80% is the gross margin from 2.7% in the first 9 months of the fiscal for the last mile business.
That's where actually we think of the longer, medium to long term view of what we think the business can create.
More from a FY 2026 timeframe, sir.
Yeah. I think, and by the way, I think our last mile business is roughly around, I think around 4% in the quarter we just went by from a gross margin perspective.
Yeah, I was looking at the first 9 months. Okay.
annual.
Yeah. Yeah. You mentioned that, the glide path for the MLL Express business is more like mid-teen, if I heard correct, on gross margin, which is significantly better where your margins are for the 3PL business and freight forwarding, you know, at 11% and 10% respectively. Is that right? Again, what timeframe are we looking at for that improvement to happen? Maybe the next year the focus will be on getting the cost optimization and the turnaround right.
Yes, Sumit, I think everything you said is right, including the fact that mixture of focuses on cost optimization further on. I think on scaling up the business, I think scale is very fundamental to being able to create that leverage in the express business. I think what we have right now is a very well-developed network, not just in terms of pin code delivery, et cetera, but also in terms of the detail network, right, and the sales capability that network builds. I think once we get the short-term optimizations done, I think then the focus obviously will be on scaling up the business. The thesis obviously is that we will be able to get to a mid-teen gross margin, which is consistent with generally comps in the industry, right?
Therefore, the exact timing for it, Sumit, I'm not gonna give guidance on a specific time for it. Obviously that's the medium-term kind of outlook on what we are trying to accomplish.
Sure. Those were my questions. Thank you.
Thank you, Sumit.
Thank you. The next question is from the line of Krupashankar NJ from Avendus Spark. Kindly proceed.
Hi. Good evening, gentlemen. Hope everyone's well. Two questions from my side. First one is warehousing, that, what we have seen is that, while the space addition has gone up, you're seeing the yield per square feet has also come off. Just wanted to understand if it's just a timing issue wherein most of the capacities were added towards the end of the quarter or is there anything more? In the second part of it is, you know, traditionally this business has been growing at 25%-30%, while last two quarters you have seen that, the growth has tapered down.
Just wanted to check if you are expecting that this growth rate will jump back again to 20-25%, or are we seeing the new the growth rate or given softness in overall network now?
Hi, Kripa. I hope you are well. I think, as far as the warehousing piece is concerned, I think clearly, I think you're probably accurate in, broadly, I think in what you summarized. I think revenue was down largely with consumer capacity addition. I think a couple of elements there, Kripa. I think first one is that, yes, as you point out, I think a fair amount of the capacity addition came at the end of the period.
I think if you actually look at our notes to the slides, I think you will find there that the total space which is reflected here includes facilities which are just have been finished construction, have been given to us, but have not been leased yet to customers because they are in a what you call a fit-out phase. Therefore, there is that impact of it which is there. I think the other part which is an impact of it, Kripa, is that obviously in the third quarter of the year, we generally see seasonal pop-ups and pop-up facilities coming in or tent facilities coming in. You'll recall, since you have been with Abhinav engage for several years now, that that has always been a bump up every year.
I think as I mentioned earlier on in my opening comments, I think this year, given some of the network consolidation, we have just not seen that kind of pickup. Now that volume which comes on a pop-up or a tent site normally doesn't get accounted for in our space under management because they're temporary site. Therefore, that creates an illusion of higher or lower yields, depending on how the number turns out. In the past, at times, you know, Kripa, it made our yields look a little bit sharply higher, and we've clarified that earlier as well. This quarter, obviously, with that not happening, we've obviously seen, you know, last year's INR 272 crore of revenue had more pop-ups, if you may. This year, obviously, we've not seen that and that's been the thing which has affected yields.
Those are two factors which affected. I think, you know, as an asset-light company, one of the things which we believe is very important for us, and we believe the strength of us, is the ability to manage capacity with agility. Clearly, I think as I mentioned in my opening comments, we have been seeing that slow down as networks have been consolidating over the last couple of quarters. In response to that, we've obviously been pushing back and rationalizing the pace of our additions as well. Right. We have seen that as well, that the additions have also come down a little bit. I think it's largely a reflection to that external environmental or external factor because of demand. We have a, you know, a longer term perspective, Kripa.
We do expect that business doesn't come back. I think what we said earlier, we'll add 2.5, 3 million sq ft a year. I think that's something which we are pretty much committed to doing. We are even I think this year compared to last year, exit, I think if you look at a bit of our FY22, you know, which was around 13.4 million, we are up around 15.4 million, which is roughly 2 million sq ft in that range. That pace should continue, Kripa. It'll obviously there'll be some, you know, cyclical adjustments to it. From a strategic execution perspective, that remains the focus.
Great. One clarification. Typically when the stockyards good space comes down, the average revenue per square foot typically goes up, and you're not seeing that happening this time around. In fact, the decline has been quite steep at around 8%. That's where broadly my question was.
That's mostly a pop-up. Most of that has been pop-up impact. We've not seen yields come down.
All right. Okay. Okay.
Right. Most of that's actually been the impact of the pop-ups because typically in Q3, we'll see Q4 generally, solutions and warehousing revenue, Kripa, is lesser than Q3. In every year, that's mostly because, you know, the pop-ups go away. The pop-ups come in Q3 and go away at the end of Q3. Therefore, in Q3, we see a kind of a bump up in yield because of that. That's largely because your numerator includes the revenue, but the denominator does not include the product.
Understood. One more question on the freight forwarding side. Now, while I do understand that you have taken a lot of measures to sustain the profitability in the freight forwarding segment, now last 2 years have been quite rewarding, with respect to that operations. Now you're showing things slowly seeing things coming back to normal. Typically, we used to do about 1%-2% EBITDA margins in large freight. Based on what, you know, you have brought forward, I think perhaps some expansion is likely. Given that the space is quite intensive on a competition basis, so are you seeing that margins will sustain at 4% or so, or is it likelihood that it can revert back to the historical levels? Thanks.
I think, Kripa, I think I mentioned this when I think Vikram or somebody asked this question. I don't know if I remember. Yeah, we don't expect that I think margins will come down to that historical level. I think compared to the past, in 2019- 2020, for example, I think gross margins have actually expanded from around 9.5%-9.7% in 2019- 2020 to nearly 11% now. Right. In that sense, I think we expect to be able to hold that percentage margin benefit. Obviously, we have to get the volume back because part of it is fixed cost absorption and obviously on lower scale that can have a negative impact.
Broadly, to answer your question, I think we don't expect to go down to 1-1.5%. The focus really is to get the volume back, which over the next couple of quarters we are optimistic of doing. I think as I mentioned earlier, you know, 3 years ago, I think what we mentioned was that what we kind of said was that we expect the forwarding business to grow at 20% a year on a mid-cycle basis, a mid-cycle perspective. I think we are at that CAGR right now as well. Despite that sharp increase, and the adjustment downwards, I think we still expect to maintain that broader momentum. We don't expect margins to come down to that 1% level.
I think we hold around where we are today.
Sure. Thank you. That's it from my side and all the best.
Thank you.
The next question is from the line of Damodaran from AXIS Capital. Kindly proceed.
Thanks for the opportunity. I hope I'm audible.
Yes, sir, you are.
I know please carry on. Sure. Just two questions from my side. One on margins. The core 3PL business has seen margin improvement, and you have called out a few factors in your opening, I mean, the press release. Just wanted to check whether there is some mix component to this. I mean, your e-commerce business I'm assuming would have lower margins. Has that contributed because the share of e-commerce seems to have big, has that contributed to margin improvement? That's one question. The second is a bookkeeping question on unallocable expenses, which seems to have gone to zero in the third quarter. What's happening there with that? Those are my two questions.
Sure, Damodaran. I'll take the first one. I'll have our bookkeeper answer the bookkeeping question. One of the first part of it, I think it's not been successfully segment. In fact, I think as we had mentioned earlier on, this is a softer quarter in terms of warehousing and solutions. In terms of non-M&M SCM revenues, which generally have a higher percentage of warehousing and so-and solutions. Frankly, I think if our volume was not a bit on the lower side, I think we would have seen actually probably were coming at even a better margin than what we have projected here if our e-com and other segments did not have some of that slowness which we saw in the quarter.
Definitely, I think that slowness we saw actually has been, has been negative to our margins, right. It has not been positive to our margins. Right. That's one. I think where the, where the margin expansion of the core 3PL has come has been, has largely been around, not been around mix, it's been around execution. I think what we've said the last couple of quarters has been that last three quarters our narrative has been that we are focusing on improving margins through productivity and other measures in the warehousing and the solutions end of the business. That's something which have started playing out as well.
I think in combining that with a more flattening or leveling of the depreciation side, the Ind AS 116 charge will start flattening out, we should see the full flow through of those improvements coming through. It's really been productivity and not mix. If mix had actually been more towards non-M&M, I think margins would have been, you know, would have been higher because that would have been more warehousing solutions and less transportation.
Sure. Any further scope for improvement from these levels? I mean, one, the e-com business sort of revise...
I think what we have said, Damodaran what we have said, I'll hold back what we've said, you know, what we've consistently said is that on a, on a, on a medium to long-term basis, we expect that we will continue to improve gross margins by 25 to 30 basis points, right, every year. That's something which remains 25 to 50 basis points, I'm sorry, I stand corrected. 25 to 50 basis points every year, that's something which remains our focus. I think, you know, we are driven more by the offering rather than the segment. Really it's about transportation to transportation, FTL, distribution, car carriers, right, warehousing, fulfillment. That mix is actually what drives our margins rather than e-commerce or automotive or M&M and non-M&M.
That diversification remains, is something we'll continue to focus on. I think the broader diversification has been important because you have to go back to 2018, 2019, when the automotive volumes then in 2019, 2020, when we had a sharp decline in automotive in the second half of the year, we saw obviously a very sharp decline in our overall business. Today, I think what has been, what I think we've been able to accomplish is even as some of these segments move around, right, unless you have a perfect storm event, right, the fact that we have a broader diversification allows us to peak in some segments even if we see softness in others.
Because our margins are driven more by offering rather than segment, I think, you know, we should be able to drive that consistency in the business. Right? As far as the question on the unallocatable expenses, maybe if Yogesh can explain the books issue there. Sure, Damodar. In the quarter gone by, we had at the beginning of the quarter, as of 1st October itself, had transferred our enterprise mobility business into a subsidiary which is MLL Mobility Private Limited, which housed the mobility business which we had acquired earlier in the financial year as well. With that transfer, the standalone entity now has only the supply chain business in it.
Since the results what you see here, so mobility business contains the mobility entity has the entire mobility segment result. The other entities have the supply chain segment. From that perspective, what you see today in segment results is straightaway the profits before tax number, and hence there's no allocation of cost appreciable. I mean, respective entities have their respective segment numbers already over it. That's why you see those numbers not being there in the unallocatable expense. If you see the initial two A and two B, that would have factored for it. Yeah. Yeah, sure. This is sort of continuing this. Yeah. Yes. Yeah.
I mean, structurally, Damodar, if I just add to what Yogesh said, I think we've said earlier that, you know, the structure, the corporate structure we are following, MLL largely increasingly has a 3PL business, and the whole co itself. We have been driving better asset ability at a corporate structure level to ensure that businesses are more self-contained sharply. Therefore I think you're going to see lesser of those unallocatable expenses in general. Right. Got it. Thanks. Thanks for sending my questions.
Thank you. The next question is from the line of Pranay Roop Chatterjee from BCMPL. Kindly proceed.
Hey, good evening, Ram, Yogesh, and everyone present. Good to connect again.
Hi. Hi, Pranay. Good afternoon.
Hey. Yes. I have three quick questions. First one is for Yogesh. Yogesh, this question has been asked twice already. I'll ask it in a slightly different manner. The other expenses, interest and depreciation have increased and it's clear why. My question is, in my understanding, one and a half months of other expense, interest and depreciation has been considered for the Rivigo. Probably the real normalized level of other expense and depreciation, which is the full three months impact, would only come in Q4, which would be slightly higher. Is that understanding correct?
On the interest fees, you would have, that right from a, from a drawdown, you would have done it, you know, more closer to the time when we closed the transaction, which was early November.
Yeah.
Within that, I think, I mean, there isn't much on the depreciation fees, Ram explained also in our conversation, because these are asset light businesses.
Mm.
I mean, it would be by far, you know, similar run rate, et cetera.
Okay. Second question on freight forwarding. Most of my questions were answered, so I'll just quickly check. Ram, how is the price moving in January, like, versus December, if you were to say? Do you see it bottoming out or, how do you see it moving? Same question on volumes. Jan versus December.
Yeah. I think. Okay. I think price is still soft. I think, I would say normally, if I just summarize it across the delivery lens, I'd probably say it's, you know, flat to downwards marginally.
Okay.
Right? Not sharply, but marginally. It's bobbling around the place, right? Bit different by lane, by capacity. Generally, I would say overall neutral to negative. Neutral to marginally negative. Volume is good. Volume has been growing. I think, you know, we are continuing to see good growth, I would say, on the air side as well as the ocean import side. I think export side is seeing some softness because of the global slowdown, right? Especially on the US and the US markets are seeing some of that slowdown impact.
On the import side, I think it's been, it's been positive, despite I would say, as we have fairly noted what we have not seen on that, what I would say we've not seen is a big pre-Chinese New Year burst. We typically see, you know, Pranav, every year we kind of see this big pre-Chinese New Year kind of inventory addition, which a lot of people tend to do. That has been absent, I think on a sequential basis, volume has been positive. Price is, as I said, a little bit neutral to negative.
Got it. Got it. The last question is on Express business. Two parts to it. One is a number question and one is a strategic question. On the... When, when you say mid-teen gross margin, when I've seen some of the other businesses, Safexpress, and some of the other guys, broadly it's around high 20s gross margin and low to mid-teens EBITDA margin. When you say teens gross margin, are you calculating gross margin the same way as they do? Or is it like more costs are, you know, taken above gross margin? That is one, how it's calculated.
Number 2, a key driver for you to improve that, cost per kilo in Express is going to be increasing volumes, obviously coupled with, network consolidation. On the volume piece, right, overall market is not growing that well. You also said that it's looking down and you will expect pickup in the festive season, next festive season. In an environment where the market is not growing, How do you plan to get that incremental volume so that, you know, you can drive that optimization?
Super. Thank you. Let me try and answer both of them. The first question, unfortunately, I'm not very capable of answering how our numbers, how we calculate versus some of the others in the industry, because I would be fairly ignorant about the specifics of how they compute cost elements. I think what we can say is that we have used gross margin definition the way we use it across our business.
Okay.
Which includes all the variable costs, and, it continues to leverage what is fundamentally an asset-light model structure, which we will be expecting to deploy this business as well.
Okay.
Right. That's one thing. As far as how we're gonna get volume growth, I think what I... Let me kind of paraphrase what I probably said earlier as well. Pranav, first one I think is, you know, we've had two networks. I think we had our network in MLL. We actually acquired the network from Rivigo through MESPL. Both these networks are fundamentally subscale. Combining those networks in terms of volume, right, is actually creating network at a much larger scale. We will see the cost benefits of such scale coming through.
Right.
Whether that's the footprint of the network, whether it's the cost efficiency of our line haul or our feeder lanes, which are things which I told earlier on, right? Therefore, you are right, volume will play. But we don't need, you know. There is a big bump up of scale coming up just by combining the volumes of both the business and operating them on one network. That's one of the fundamental drivers, Pranav, for the improvement in margin. In terms of broader growth beyond that, I think it's a great question. Markets are volatile. I think this is where the power of the integrated portfolio we have actually comes in. For one, I think we have a large part of our customers in 3PL, in freight forwarding, et cetera, where these customers are actually buying multiple services.
We've often not been able to serve them because we've not had a comprehensive enough offering.
Right.
If you go back and, you know, 2, 3 years ago, I think, you know, one of the things which I or Sushil, who started the freight forwarding business used to be asked is, "How are you gonna grow the forwarding business?" We kind of said the same thing. We said we have common customers, one of the things we expect to be a catalyst is our ability to share, to be able to go to common customers who buy multiple services, and gain share of wallet with them. That's something which we expect to be able to do in the Express business as well. The second piece which I think is favorable for us is actually the fact that with the MESPL acquisition we get a significant retail network.
That retail network is something which differentiates us, I think, from many other businesses, many other players in the industry with a far deeper upcountry presence and better pricing capability there as well. Through the acquisition, I think the first 60 days we've done, we've been able to retain all those partners and in fact grow some of them. Therefore that's the second piece which I think will allow us to get deeper coverage, especially as kind of Indian manufacturing kind of rebounds in more deeper locations. I think both of those are what we think will drive the growth. Right.
There's a fundamental step up which is nonlinear, which comes by combining those networks and then a more linear growth which comes because of coverage, you know, share of wallet, and so on.
Got it. Thanks a lot. I think my questions are concluded for you.
Thanks, Pranav.
Thank you. The next question is from the line of Dina from Kotak Institutional Equities. Kindly proceed.
Hi, sir. My question is more towards achieving the previous cycle PAT margin run rate, like company went from 14, 15 onwards till 2019. It used to make around 2% kind of PAT margin. When can we reach that level going ahead, taking into account this Rivigo acquisition also because this Rivigo will be ultimately adding mid-teens kind of gross margin. What kind of PAT margins would Rivigo be adding over to this once the cost optimization and network optimization is over? Where does basically Rivigo fits into this entire picture of moving towards improved PAT margin going forward for the company?
Thanks, Dina. I think to go back, you know, and frame this the best I can, and of course you should, you know. I need to go back to the history and just go back, let's say 2018, 2019, which probably was our peak year in terms of profitability. The first year, full year after IPO, I think around 2%. If you split that, I think around 1.7%-1.8% in the 3PL side of the business and around 2.5% on the mobility side of the business. Then there's some other income and a few other things which were additive to the earnings. I think if you look at where we are today, we are just not a 3PL.
The context of our business is very different today, right? Roughly two-thirds or 70% of that is 3PL, and that's roughly at that, either the 1.5%-ish margin. We have some distance to go. We think that will mature over the next three, four years at roughly 2%. Right. That's something which we believe, you know, we are confident we'll be able to get to. The network services businesses at scale should come in at higher levels of margin, especially on freight forwarding and express. I think on last mile, you know, we'll still probably be at lower than, you know, We'll be at the 1.5% kind of margin.
On the other businesses, we are expecting to be at 3%-4% kind of margins on the freight forwarding and the express business. The forwarding business is roughly in that range already, though at the lower end of that range. Right. The express business, through the turnaround and the scale up should be able to get up there. I think the mobility business has been a little bit more challenging because the speed of recovery has been macro driven there. I think post the post the pandemic, we have still not seen a large scale return to work on the enterprise side. We're still scaling up the B2C side, which we acquired through Meru, right?
I think that one's a little bit harder to frame exactly a time window on it. The other part of it, I think as I said earlier, within that three year, three, four-year window, we expect to be able to get to that kind of range. I won't say that's a guidance, but that at least is kind of the aspiration, the goal which we are trying to execute towards. Specifically on the express business, I think F24 is really going to be a year of turnaround and consolidation. I think F25 onwards is going to be the period for earnings acceleration.
F 24 till 1H, there may not be a significant improvement, at the PAT margin level, even from the Rivigo and post 1H...
Yeah, you are right. I think F24 we are gonna actually basically be focused on breakeven in the business. I think as I mentioned earlier, we expect to be EBITDA positive in H1. By the end of H1 and be able to time to end the year at a breakeven level overall. F25 onwards is where you will see the earnings acceleration. That's the way we planned it.
Breakeven at the EBITDA level or breakeven at the PAT level?
Breakeven at PAT level, right. Hopefully by the end of the year. F25 is when you see the acceleration from, right. That's actually the way we set up the transaction, right? I think, you know, we acquired the company at 0.67 EBITDA, which is a substantial discount to most comps. Because we actually obviously planned to do the work of turning it around and fixing up some of the margin issues.
Okay. Okay. Got it. My second question is related to the weak margins in the TTS business in the current quarter. Any specific reason why the margins were weak in the TTS business in this quarter?
First of all, I think the mobility. It's on the. I guess you are referring to the.
Enterprise mobility. Yeah.
Yeah. I think the enterprise mobility piece, I think margins were, I'm not sure how to refer to... I think gross margins were up marginally from 10.9% to 11.2%, which of course does reflect a combined mobility business. It's not just TTS or enterprise, it's the Alyte plus Meru. The combined, we've had 6% growth in revenue, and 9% growth at a gross margin level. It did slow down compared to the full year. Obviously on a full year basis, revenues are up 16%. Gross margin is up 34%. A bit of a slowdown compared to the first half of the year, but definitely was not a reduction or a decline.
The segment profit was around minus INR 24 million. Basically a loss of INR 24 million for the TTS business for 3Q, and revenues were around INR 650 million. This is what I was referring to. This translates into the segment profit margins of minus 3.7% for the TTS business.
Okay. Wait, Dina, we'll just look into this and come back. I don't know, Yogesh, do you have anything to add?
Sure.
What you are referring to is the PBT numbers and what Ram can explain is gross margin.
Yeah, gross margin. Right. Right. Any specific reasons that it contributed despite having the decent gross margins, the PBT margins were negative?
The absolute... I mean, once you get down to PBT, it's a matter of what absolute gross margin is generated and the absorption of overheads, depreciation and financing costs.
Mm-hmm.
I mean, mobility business per se since the time COVID had hit, had shrunk drastically in volume because our the mainstay business of office movement kind of had shrunk. That's kind of gradually coming back. I mean, it's not yet to the levels. That's reflective in the total number as well. I mean, mobility business for us was 10% of our control numbers, whereas as this quarter gone by also it being 5%.
Yes, yes.
When the absolute business volume is remains muted, the absorption there remains muted, and hence at the PBT level you see the impact. Dina, just to add, I think compared to last year when the gross PAT was minus 21%.
Mm-hmm.
Losses around INR 4 crore, I think, this year in the third quarter, SAT is on -4%, right?
Yeah.
on the operational improvement and consolidation, because last year was only the main business.
Mm-hmm.
The light businesses. In terms of going forward look, I think is probably the ones who are more interesting. I think it's a combination of two things. I think, you know, one is we are expecting volume throughput to continue.
Mm-hmm.
That is one thing which will drive lever growth. Second thing, as Yogesh said, is that obviously you have the impact of depreciation, et cetera. Because we have our own fleet, we have around 350 to 400 vehicles, right? As that depreciation starts tailing off, we should see that getting positive as well.
Okay. Some impact maybe because of Aline inclusion also in this?
Yeah. I mean, the Alyte business is actually pretty accretive to the transaction. By combining both of those, the enterprise mobility business has been more profitable than the main business, the mobility business.
Okay.
By combining both of those, obviously we have first a combination synergy, but then we're also driving operating synergies there in terms of vehicle utilization and so on.
Sure, sir. Sure. Thank you. That's it from my side.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Thank you everyone. I hope we've been able to answer all your questions satisfactorily. However, if you do need further clarifications or want to know more about the company, please contact our team, investor relations team or HGR Investor Relations advisors. Thank you once again for taking the time to join us today on the call. Thank you. Thank you. On behalf of Mahindra Logistics Limited, that concludes the conference. Thank you for joining us. You may now disconnect your lines.