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Mahindra Logistics Ltd

| Q3 & 9M FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤2nd Feb 26

Summary : Mahindra Logistics achieved profitability in Q3FY26 after 11 quarters, driven by strong volume growth, margin expansion, and disciplined execution across its diversified logistics segments, with a positive outlook despite last-mile pricing pressures.

Management Perspective positive : This quarter marks an important inflection point for Mahindra Logistics. After 11 consecutive quarters of losses, we have turned profitable, a milestone that reflects the decisive actions we took over the past few months. The momentum is clear and we are committed to building on it sustainably. Our pipeline is healthy, our execution engine sharper and our internal performance framework far more outcomes driven than ever before.

Concall Report Analysis & Insights

Business Overview

  1. Mahindra Logistics turned profitable in Q3FY26 after 11 consecutive quarters of losses.
  2. Q3FY26 revenue increased by 19% year-on-year to INR1,898 crores, driven by strong volume growth.
  3. Consolidated gross margin expanded by 76 bps to 10% in Q3FY26, up from 9.2% in Q3FY25.
  4. EBITDA grew 40% year-on-year to INR102.8 crores; operational PAT was INR9.2 crores.
  5. 3PL revenue grew 20% Y-o-Y, Express Logistics volumes increased 19% Y-o-Y, and Freight Forwarding revenue grew 33% Y-o-Y.

Future Growth Prospects

  1. Company is well-positioned to scale B2B Express Logistics (MESPL) due to improved unit economics.
  2. Committed to reducing 'white space' by 95% by September '26, currently ahead of schedule.
  3. Expects profitability in last-mile delivery to improve from Q4FY26 onwards through renegotiations.
  4. Actively discussing deals with large e-commerce, manufacturing, consumer, and mobility clients.
  5. Joint venture with Seino is scaling up, with expected wins from large Japanese companies next year.

Management Insights

  1. Q3FY26 marks an important inflection point, turning profitable after 11 quarters of losses.
  2. Progress is driven by sharper execution, tighter cost management, and disciplined growth.
  3. Leadership and operating teams are stabilized, leading to faster decision-making and customer responsiveness.
  4. Reinforced pricing discipline, enhanced contract renewals, and sharpened customer profitability management.
  5. Stepped away from non-profitable relationships and recalibrated engagements for true service value.

Signs of Skepticism

  1. Management declined to share specific white space reduction percentages for competitive reasons.
  2. Management did not provide a minimum margin threshold for accepting new orders, citing internal policy.
  3. The company is still halfway through price corrections, indicating ongoing challenges in profitability optimization.

Risk Factors

  1. Last-mile delivery business faces continued pricing pressures and operational complexity.
  2. Global uncertainties across trade lanes persist, impacting freight forwarding despite current growth.
  3. The company is still halfway through price corrections across its customer base.
  4. Reliance on the auto sector for 62% of revenue, though diversified across vehicle types.

Good To Know

  1. The company had no debt on a standalone basis as of December 31st; consolidated gross debt is INR64 crores.
  2. SCM contributes 94% of overall revenue, with mobility contributing 6% in Q3FY26.
  3. Auto business accounts for 62% of revenue, non-auto 38%; Mahindra Group contributes 58%, non-Mahindra 42%.
  4. The new Labour Code impacted retiral benefits by INR7.36 crores in consolidated results.
  5. Received multiple awards for operational excellence, ESG leadership, and supply chain resilience.

Key Drivers

  1. Turned profitable after 11 quarters.
  2. Strong volume growth across segments.
  3. Gross margin expansion continues.
  4. Strategic focus on profitable growth.

Key Analyst Discussions

Competitive Environment

  1. Competition is not the main challenge in last-mile delivery; unit economics is the primary issue.
  2. Last-mile delivery is a zero-entry business, leading to persistent pricing pressure.
  3. Company is selectively refusing non-viable last-mile sites to maintain profitability.

Market Trends & Consumer Behavior

  1. Festive quarter saw clear uplift in demand across key sectors, supported by consumption and GST effects.
  2. Underlying momentum strengthened meaningfully versus the first half of the year.
  3. Express Logistics industry is shifting from aggressive expansion to consolidation and improved asset utilization.
  4. Overall outlook remains positive despite global uncertainties.

Financial Highlights

  1. Express business gross margin improved from INR20 lakhs to INR2.4 crores in Q3FY26.
  2. Company is very close to achieving EBITDA breakeven in the Express business.
  3. Yields in B2B Express business have improved year-on-year and remained steady sequentially.
  4. Expects margin expansion in the near to medium term due to cost interventions and discipline.

Product Composition

  1. Mahindra Group's revenue contribution slightly increased to 58% this quarter.
  2. Strong volume growth in M&M Auto and Farm business significantly contributed to 3PL growth.
  3. Auto sector (including tractors, trucks, 2-wheelers) accounts for 62% of total revenue.
  4. Company aims to grow business across all verticals, including e-commerce, manufacturing, and consumer.

Strategic Considerations

  1. White space reduction is on track, committed to 95% reduction by September '26.
  2. Integration of SML and Mahindra is expected to win new business from large customers.
  3. JV with Seino is gradually scaling up, with a team in place and active discussions with Japanese clients.
  4. Management will develop and share a long-term vision statement after stabilizing current turnaround.