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Mahindra Logistics Ltd. continued to report muted profit margins (1.14% for Q1 FY23). This is despite continued strength in non-Mahindra (non-M&M) supply chain management warehousing revenues (growing at a three-year compound annual growth of 30%).
Auto business revenues staged a strong comeback, with total auto revenues (mainly M&M) growing 34% YoY and 15% QoQ (auto non – M&M is pretty weak at 1.4% YoY).
Normalising freight costs plus increase in margins from Bajaj Electricals Ltd. contract are the two key margin levers in FY23E.
Continuation of weak profit after tax margin print despite improving yields on the back of increasing SCM (warehousing) revenues, decent recovery witnessed in enterprise mobility (up 72% YoY; though still at 58% of Q1 FY20 levels), and nearly static warehousing AUM for last four quarters (allowing for better utilisation of assets) pose challenges to Mahindra Logistics’ investment case, in our view.
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