After having started its journey way back in 2000 as an in-house division of the Mahindra group, to meet the logistics and other transportation needs of the group companies, Mahindra Logistics Ltd (MLL) became a separate company in 2008, when the group transferred its logistics business to the new entity. While the initial years of MLL continued to remain focussed on offering logistics services to the group companies, in the last five years the company has taken a conscious decision to move beyond its group territory. In fact, the company has been in transition mode, looking to diversify itself not only in terms of clientele but also in terms of the sectors/industries it caters to and the overall offering.
The company, a part of the $20.7 billion Mahindra group, with a presence in over 100 countries and a large workforce of over 200,000 employees, has emerged as one of the leading integrated third-party logistics (3PL) solutions providers in the country. From being focussed primarily on the auto and manufacturing space – that too within the Mahindra group – MLL has followed an asset-light model and built up its logistics capabilities significantly.
It provides customised, innovative and technology-enabled solutions to a wide range of customers across diverse industries in the domestic market, which is expected to reach a value of Rs34.5 lakh crore by 2025, growing at a CAGR of 12-13 per cent. The 3PL market, on the other hand, estimated to be Rs58,000 crore in 2019-20, is likely to clock 17-18 per cent CAGR and is poised to become a Rs1.2 lakh crore market by 2024-25.
“The Indian logistics market is undergoing a big transition, even as implementation of GST has revolutionised the entire 3PL industry, with manufacturers outsourcing a higher proportion of logistics operations to specialised 3PL players like MLL,” says Ashok Kumar, founding principal & managing director, Gennex Partners, a realty consultancy firm. “The logistics cost, as a percentage of GDP for India, stands at about 14 per cent, significantly higher than those in the developed countries; hence, there is huge scope for improvement. The government has undertaken measures to develop logistics infrastructure and bring efficiencies in the sector, thus creating a favourable situation for the industry.”
The Rs3,500-crore company, with a presence across two major business segments – Supply Chain Management (SCM) and Enterprise Mobility Services (EMS) – caters to the various needs of over 400 customers across automotive, engineering, consumer goods, pharmaceuticals, telecom, e-commerce, bulk, banking, IT, financial services, and the insurance and consulting businesses. It also offers integrated employee transportation solutions to enterprises under its EMS business, which accounts for about 11 per cent of MLL’s total revenue.
Under the EMS business, MLL provide technology-enabled people transportation solutions and services across India to over 100 domestic and multinational companies operating in the Information Technology (IT), Information Technology-enabled Services (ITeS), business process outsourcing, financial services, consulting and manufacturing industries. Pursuing an asset light model, the company offers its services through a fleet of vehicles provided by a large network of over 350 business partners across 12 cities.
MLL has rolled out a nationwide brand for its mobility service called ‘Alyte’, which is an integrated service platform that supports multiple offerings like employee transport management and customer & network management. It also utilises a common asset pool to drive efficiency. Despite the ongoing challenges due to the restrictions imposed by the advent of Covid-19, the domestic EMS business, comprising employee transportation services and on-call services, is expected to grow at a CAGR of 5 per cent, to reach a market size of Rs22,000 crore by 2024-25, from the Rs19,000 crore estimated for 2019-20.
Asset-light business model
The SCM business, which contributes almost 90 per cent to MLL’s revenue, offers customised and end-to-end logistics solutions and services including transportation and distribution, warehousing, in-factory logistics and value-added services to its clients. The company operates from 14 cities and serves at over 500 client and operating locations. It has a large network of over 1,450 business partners, who supply vehicles, warehouses and other assets and services. Its asset-light business model enables it to serve over 400 domestic and multinational companies, including JSW, 3M, Bosch, Siemens, Thermax, Mercedes and Volkswagen.
MLL has developed expertise in providing scalable and customisable solutions in warehousing, stores and line-feed, yard management, contractual workforce management, just-in time services, aftermarket logistics, layout & process design support, returns processing and distribution. Currently, it manages over 16 million sq ft of warehousing space, spread across its pan-India network of multi-user built-to-suit warehouses, stockyards, network hubs and cross-docks. MLL operates in-factory stores and line-feed at over 50 manufacturing locations. Besides, its express network serves more than 17,000 pin codes through 35 hubs located pan-India.
“Warehousing as an asset class has gained tremendous momentum and traction,” remarks Subhankar Mitra, managing director, Advisory Services, Colliers International India. “While there has been strong demand from various big box occupiers, there is new supply coming up from various Grade A developers across various markets, making it one of the most interesting sectors to watch out for”.
“The Indian logistics sector remain firmly on the radar of global investors,” adds Ramesh Nair, CEO & Country Head, India, JLL. “Recent signs show the market becoming increasingly sophisticated. The inflow of capital into logistics has resulted in more complex transactions and greater participation by both established and new investors into the sector, which we expect to continue in the future as well.”
The current scenario, favourable for the growth of the 3PL logistics business in the country (after the implementation of GST) has prompted MLL to employ a large workforce of 7,000 (including third-party associates). It has set a vision for itself to become a Rs10,000-crore entity by 2026, having grown from Rs2,064 crore in 2015-16 to Rs3,851 crore in 2018-19 and then slipping to Rs3,471 crore in 2019-20, due to macro and micro economic challenges.
“Though, in the initial five-six years (the first phase), we had limited ourselves to the Mahindra group, as also the auto/manufacturing space, during the last few years, in the second phase, we have been ramping up our capabilities in a big way,” says Rampraveen Swaminathan, 46, managing director & CEO, MLL. “On the supply chain management front, we have built up our offerings across various segments of the business and are in a position to provide end-to-end solutions to various industries. Today, we service a diverse set of clients in multiple sectors. Looking at the surge in opportunities, we have increased our exposure to consumer-facing businesses including e-commerce and FMCG. While doing all this, our approach is to follow an asset-light model and offer scalable and tech-enabling solutions, which can add value to the customer’s business. All in all, our new strategy is quite robust and balanced and will drive our growth going forward,” adds Swaminathan.
In the last few years, the company’s strategy to diversify its clientele has already started showing up. It has brought down its exposure to the group companies and auto/manufacturing to less than 60 per cent and is aiming to bring it down to less than 40 per cent in the next five-six years. The contribution of high-growth sectors like FMCG and e-commerce sectors to its overall business is growing rapidly. In 2019-20, MLL’s e-commerce business grew 26 per cent, while the consumer business witnessed traction of over 32 per cent.
MLL’s freight forwarding business, which has grown to become a significant part of its integrated cross-border solution offering in the last few years, grew 18 per cent during 2019-20. As the company looks to move up in the value chain, its warehousing and other value-added services business increased by 16 per cent.
Showing resilience
All this happened at a time when the company was challenged with the overall economic slowdown in general and decline in demand in the automobile segment in particular, even as its revenue for the fiscal fell by around 9 per cent to Rs3,471 crore and PAT contracted by about 35 per cent to Rs55 crore.
“During the year, our performance was impacted by volatility in fuel prices, coupled with a downturn in the manufacturing, auto-and-farm as well as commodity sectors, where we have significant exposure,” explains Swaminathan. “However, we have shown a great deal of resilience and grit, keeping in mind our long-term vision. Our continued focus on the consumer, pharma and e-commerce segments, which are showing green shoots of growth, ensured that we are still investing in key growth sectors and aggressively pursue our long-term goals”.
In its quest to diversify its services portfolio and offer much better value proposition to its customers, the company has adopted both organic and inorganic means. While ramping up its capabilities and services organically, the company has also gone in for acquisitions and partnerships. In August 2014, it acquired a 60 per cent stake in Mumbai-based Lords Freight (India) Pvt Ltd (for an undisclosed amount), to create a presence in the freight forwarding segment of the business.
Lords Freight is an international freight forwarding company, with capabilities in customs brokerage, transportation and warehousing. Established in 2011, it offers world-class capabilities in air and ocean forwarding, for both imports and exports. Its presence spans nine prominent cities in India, over 50 trade lanes globally and over 100 network partners. Lords has agents specialising in freight movement in Southeast Asia, Taiwan, South Korea, China and Western Europe, with trade lanes in the US and Africa in the pipeline.
Over the years, MLL has gradually raised its stake in this freight forwarding entity and now holds 99 per cent stake in the company, which continues to function as a separate entity or wholly-owned subsidiary. In 2019-20, the MLL subsidiary closed a turnover of about Rs204 crore – up from about Rs20 crore in 2014-15.
“In the overall logistics portfolio of MLL, freight forwarding was the missing link, and the acquisition of Lords Freight enabled it to bridge that gap and come closer to become an integrated player,” says Sushil Rathi, chief executive officer, Lords Freight & chief operating officer, transportation & procurement, MLL.
In October 2014, MLL, after acquiring a majority stake, partnered with Indian Vehicle Carriers Logistics (IVC) to form 2X2 Logistics Pvt Ltd, with the aim to launch assetized operations in outbound automotive logistics. This was the first time that MLL had gone in for assetizing its business so significantly, by investing in a large fleet of vehicle carriers to begin with, and then ramping up capacity. The partnership also enabled the two companies to further develop and augment their transportation networks, linking the North, West, South and East clusters of production and consumption of automobiles.
Mumbai-based IVC is one of the leading vehicle carrier solution providers in India, with over three decades of experience in catering to automobile manufacturers across India. The JV is primarily involved in automotive outbound solutions for the two and four-wheeler industries. Currently, the JV owns over 150 vehicle carriers.
In August 2018, MLL went on to acquire a strategic stake in Transtech Logistics, also known as ShipX. The company, founded in 2008, is a SaaS (Software as a Service)-based Transport Management Solution (TMS) platform, which serves the supply chain automation needs for 3PLs, shippers and transporters. ShipX’s solutions provide better visibility and control of operations across the entire network of transportation businesses, including their branches, franchise locations and customer branches.
Founded by an experienced team, which was part of a Boston-based supply chain fulfilment company that had been incubated by Infosys, ShipX had been working with MLL for over three years and had been enabling transportation solutions. This acquisition helped MLL to increase end-to-end digitisation and bring in operational efficiencies.
With all these capability-building efforts against the backdrop of diversification outside M&M and outside the auto segment, MLL managed to bring down the share of revenue from the Mahindra group to less than 60 per cent from over 80 per cent in 2014-15. It also expanded its business, even as the last couple of years have been challenging for the logistics company.
Despite efforts to bring down the share of Mahindra group-focused revenue and get into non-auto segments, the overall concentration remained on the auto space, with over 50 per cent revenue coming from the automotive space and this was something that has taken a toll on the business in the last couple of years.
“The year 2019-20 was a period of transition, as we revisited our strategy afresh and came up with an upgraded version of strategy, which will help realise our vision of Rs10,000 crore by 2026,” affirms Swaminathan. “Though the auto sector remains a large and significant market for us, we are also building competencies in serving high-growth verticals like e-commerce, consumer and pharmaceuticals.
These sectors will continue to generate higher growth in the medium to long term on account of rising consumer demand, and favourable demographics. We intend to focus on auto, engineering and consumer sectors, while targeting select accounts in bulk and auto outbound. We plan to grow in these profitable markets by focussing on the four core strategies set out”.
Four platforms
To pursue its new strategy, the company has established four platforms, says Swaminathan. The first one is to grow its solutions business significantly, while the second one is to expand the services portfolio, where the freight forwarding (Lords Freight) business has been playing a crucial role.
“In fact, we have a bouquet of services with solutions,” observes the MLL CEO. “One of those services is freight forwarding and, over the last two-three years, we have expanded it significantly. Last year, even in a downturn, the business had grown. And, even this year, in the first quarter, despite Covid, the business actually had a healthy growth, which has been driven by our continued focus on providing customers these cross-border solutions using services like freight forwarding.”
While expanding its offering of solutions, the company has leveraged its domestic and freight forwarding businesses to provide cross-border solutions to several customers across segments. It has created varied distribution solutions, from warehousing to multi-channel delivery to customers, based on its capabilities and technology. The company has also developed solution capabilities, including omni-channel logistics and distribution, returns processing, cross-border logistics, telecom tower maintenance and spare parts distribution.
Under the first two platforms, while MLL plans to expand the portfolio of its offerings that support its ability to design and deliver end-to-end integrated solutions, it will position itself as a provider of integrated and differentiated solutions, focussed on end market value chains. The express logistics market has registered significant growth, driven by growth in the distribution needs of key sectors like e-commerce, auto, FMCG, FMCD, pharmaceuticals and others.
These sectors are key focus markets for MLL, and expanding its presence in express logistics will help it expand the share of business in these sectors. “We plan to build strong express operational capabilities and are evaluating several options, including building our in-house express network, acquiring national or regional incumbents, and forming partnerships with global express firms,” says Swaminathan.
MLL provides in-plant logistics and assembly services to a number of auto and engineering customers. As per the new strategy, it now intends to leverage its strong expertise gained over the years and create a differentiation in the auto and engineering sectors by building and expanding its services to provide external component and product assembly, fabrication, painting, inventory management and sourcing.
Over the years, the company has built freight forwarding capabilities through its subsidiary, Lords. However, MLL’s freight forwarding business still lacks scale and a comprehensive global presence and hence it plans to expand its freight forwarding business significantly. The company is exploring options to build the business organically in Southeast Asian markets and is also evaluating potential partnerships with international freight forwarding companies.
MLL has built a network of warehouses across strategic locations in India and has developed strong surface transportation capabilities along with first and last mile linkages. However, it does not offer solutions in key multi-modal segments such as rail-based container transportation, inland shipping, CFS/ICD, etc. “As customers seek single-stop, mode optimised logistics solutions, it becomes critical for us to offer multi-modal offerings in the future, linking sea, rail, road and air,” remarks the MLL CEO. “We plan to leverage our pan-India presence and surface transportation capabilities to form strategic partnership with a major multi-modal incumbent. Such partnerships will enable MLL to offer rail and sea-based services to our customers, and to manage and provide 3PL services in logistics parks.”
As supply chain complexities increase, customers are demanding more than just plain transportation or storage services. They want solutions which optimise their supply chain needs from sourcing, inbound transportation, storage, outbound transportation, distribution, fulfilment, returns processing and reverse logistics. Through experience gained from serving e-commerce, consumer and telecom sector customers, MLL has developed the key building blocks for providing integrated solutions. The company aims to bring synergies between its various offerings to build a complete set of solutions, tailored towards its key focus markets.
As a third platform, the company is building operational excellence by transforming its transportation capabilities, developing common operating systems and expanding its network of warehouses. Transportation constitutes a major part of MLL’s operations. It operates on an asset-light model, wherein it sources vehicles from its large network of business partners. To utilise its assets across customers, sectors and routes, MLL intends to focus on cross-utilisation of assets through digitisation and network management.
“Our business partners are key to our continued success,” contends Swaminathan. “We have been meticulous in our partner selection, on-boarding and development process and have rolled out several programmes aimed at improving partner loyalty, service quality and performance. Going forward, we will continue with such investments in our partners.”
To launch and scale new business and have world class operations, MLL will continue to develop consistent and common operating systems focussed on safety, workforce management, productivity and process excellence. To develop and maintain the highest standards of operations, the company has also launched centres of excellence focused on developing functional competencies and automation.
Post GST, companies are re-aligning/consolidating their supply chains for market efficiency (not tax efficiency) and MLL intends to take advantage of this opportunity. It has contracted large, multi-user warehouses in certain strategic locations across India. These multi-user smart warehouses will be built to suit the highly flexible needs of e-commerce and consumer companies.
These Grade A warehouses will stay energy-efficient and sustainable by utilising solar power and bio-sewage treatment plants. “We plan to keep expanding our network of built-to-suit warehouses over the next few years. In fact, the company plans to add 10 million sq ft to its existing 16 million sq ft of warehousing capacity in the next few years,” says an MLL spokesperson.
As far as the fourth platform is concerned, the focus is on digitisation and innovation by leveraging technology to create integrated business systems and edge computing integration. The company has made consistent investments in digitisation and technology over the past years and intend to continue making these investments going forward as well.
Digitising the processes
“Despite all sort of challenges, our gross margins have expanded by 30-50 basis points through 2019-20, driven by a sharper focus and cost reduction, productivity management, operational excellence and so on,” says Swaminathan. “Last year, of course, we invested considerably in digitising our processes”. He was appointed by the board as the company’s CEO in October 2019 and thereafter also its managing director. As its CEO, he replaced Pirojshaw Sarkari, who had been with the company since April 2010 and had been instrumental in growing the company into a position of industry leadership. Sarkari has been appointed CEO of Mahindra Health Care, a newly formed business of the Mahindra group, with effect from 1 October 2019.
Swaminathan has already initiated multiple initiatives towards not only making MLL a resilient entity, but also a robust player in the rapidly changing domestic logistics. He has over two decades of industry experience, spanning sectors like automotive, paper and energy, as well as a strong track record of leading businesses. He was also president, International Paper Co, India Region.
An MBA, Swaminathan started his career with Tata Administrative Services (TAS) and was associated with companies like Cummins Inc, where he was executive director, power systems business. Before joining MLL, he was SVP, international operations, Schneider Electric. He has also served on the boards of Dodla Dairy; International Paper Holdings Asia, Singapore; and Eroei Power Solutions.
The appointment of Swaminathan to lead MLL was part of the Mahindra Group’s recently announced succession plans, where the group announced a major rejig of its top management, with Anand Mahindra transitioning to the role of non-executive chairman with effect from 1 April 2020, from his position as the executive chairman.
The governance, nomination & remuneration committee (GNRC) of the board completed a structured and rigorous review of top management succession after more than one year of deliberation and announced the rejig in December last year, saying that over the next 15 months, a number of key leaders at M&M will be retiring and, hence, this rejig was needed to ensure a smooth transition.
In one of the several other changes at top management positions, VS Parthasarathy, who has been holding the dual roles of Group CIO and Group CFO, has now been elevated to the post of president of the Mobility Services Sector (MSS), which was created recently by combining the group’s businesses across MLL. Parthasarathy has also been named chairman (effective 1 April 2020), MLL, replacing Zhooben Bhiwandiwala, who continues to be the president of Mahindra Partners, the private equity & corporate venture capital arm/division of the Mahindra group. MLL and all other mobility related business were earlier under Mahindra Partners, which funds and incubates new-age businesses for the group.
Now under MSS, MLL will draw a more focussed approach from the group. With greater emphasis on mobility related businesses, MSS includes a range of businesses that provide innovative, technology-driven solutions for the efficient movement of people and goods across India. In addition, the sector/division is the incubation platform and growth driver for future investments by the Mahindra group in technology-driven mobility companies, with the vision of co-creating the future of mobility. Apart from MLL, the sector will comprise India’s leading pre-owned, organised car business consisting of Mahindra First Choice Wheels, Car&Bike and Mahindra First Choice Services, one of India’s largest chains of multi-brand car workshops.
“We strongly believe that logistics and safer mobility services will play a critical role in helping India achieve its goal of a $5 trillion economy,” forecasts Parthasarathy. “Growth in the consumer, pharma and e-commerce segments, as well as our focus on tapping new growth areas will open several doors of opportunities for us in the near future. We are already one of the largest organisations in India, moving both goods and people, and we will continue to redefine our brand impact by drawing on synergies from the Mahindra Group and leveraging advanced emerging technologies.”
Parthasarathy, a much awarded professional and a thought leader, is also a votary of transformational changes, with over three decades of experience. He is a member of the group executive board of the Mahindra Group, and is also on the board of listed Mahindra Group companies, such as Tech Mahindra Ltd, Mahindra & Mahindra Financial Services, Mahindra Holidays and Resorts, CIE Automotive SA Spain, as well as other entities including Smartshift Logistics, Meru Travel Solutions and Mahindra First Choice Services.
Parthasarathy began his career with Modi Xerox as a Management Trainee. Before joining M&M in 2000, he was the associate director at Xerox. Parthasarathy’s journey at M&M began with an HR stint. He later spearheaded functions like Finance, M&A, IT and International Business, prior to being the group CFO and group CIO at M&M Ltd until 31 March 2020. He is a Fellow Member of the Institute of Chartered Accountants of India and a Member of the Institute of Chartered Accountants of England and Wales. He is an alumnus of Harvard’s Advanced Management Program (2011).
Strong position
With all these developments in place, MLL is well prepared to start its next growth phase in the domestic market, even as Covid-19 has impacted its business in the short run. During the 1Q 2020-21, the company reported 54 per cent decline in revenue to Rs410 crore owing to a 51 per cent decline in the SCM business and 82 per cent fall in the EMS business.
However, the warehousing segment continued to remain resilient and fell by just 11 per cent. The company, owing to its asset-light model, was able to reduce other expenses by 40 per cent y-o-y, enabling it to restrict loss at EBITDA level to Rs2.2 crore. Other, lower income, and higher depreciation and interest expenses had led the company to report a net loss of Rs16 crore, as against net profit of Rs18.6 crore in 1Q 2019-20.
“The current year is sure to be a challenging one for not only us, but also for the entire economy,” says Swaminathan. “Despite all these challenges, in the short run, our Indian growth story is intact, due to our inherent strengths. We are already seeing things improving with every passing month, as the restrictions are easing. As a company also, all our recent initiatives have provided us not only the much-needed capability to face the ongoing challenges effectively but also positioned us strongly in the market for realising our long-term goals.”
Experts are also of the view that the Indian logistics market, despite some short-term hiccups, particularly following the Covid-19 scenario, will continue its growth trajectory in the medium to long term. “With asset-heavy players, start-ups in the logistics sector seeing greater stress in cash flow management, and inflated costs, MLL is well placed to face the crisis, with strong financials to take advantage of expected consolidation in the sector,” says an ICICI Direct Research report. “While auto continues to dominate MLL’s business segments, it has been steadily building up its presence in the e-commerce, pharma and consumer segments. Also, with the changing client profile, it has been able to leverage the situation by enhancing the high margin warehousing, value-added services (up 16 per cent in FY20) component in its revenue mix. We remain positive on MLL’s future prospects.”
With all these developments and efforts in place, MLL has positioned itself quite strongly in the domestic logistics market. It has emerged as one of India’s leading third-party logistics (3PL) solutions providers.
The domestic logistics market is undergoing a major change post GST implementation, where the scope is huge. However, only those players with the ability to offer integrated and customised offerings will be able to rule the market in the medium to long term, in a market where these factors are becoming more favourable for organised and credible players. Keeping this in mind, MLL is well placed to take a substantial slice of the growing market pie.