Mahindra Logistics, India’s largest automotive logistics provider, has said it plans to double its revenue in the next four years by building on and diversifying its logistics services outside its parent company, Indian conglomerate Mahindra & Mahindra (M&M), and the automotive industry more generally.
The company, which was established in 2000, has gradually built up a range of supply chain services for the carmaker, including inbound and outbound logistics, inter-plant transport, warehousing, linefeed and value-added services. It still generates 70% of its revenue through services to M&M, with automotive services by far the biggest portion of its revenue. However, Mahindra Logistics’ CEO, Pirojshaw Sarkari (pictured), has now said the company intends to reduce this revenue source to 50% while it increases its third-party business across other industries to account for the other 50%.
Two years ago Mahindra Logistics experienced an upheaval when its CEO Sanjay Sinha left to pursue “other interests” along with more than 100 other employees and formed a new company, Leeway Logistics. The current management under Sarkari is now in the process of trying to stabilize operations and is doing so with an expanded portfolio and an international scope, particularly with its offering for passenger and commercial vehicles as well as the two-wheeler market, which accounts for more than 40m units a years in India.
Significantly Mahindra Logistics said it was focusing on building its international presence in markets including the US, Europe, Southeast Asia, China and Africa, through new partnerships.
“This expansion will be focused on value-added 3PL services to several large customers in these locations and will expand beyond that as well,” said the company in a statement.
“Mahindra has been a very active buyer in the mergers and acquisition space,” said V.G. Ramakrishnan, head of automotive practice for India and the MENASA region for business analyst firm Frost & Sullivan. “I would not be surprised if they pick up niche players in some of the markets. Inorganic growth is part of the company DNA and very well could be the way for logistics to grow. That could in some way explain the bullish revenue growth scenario the company is targeting,” he added.
The company recorded income of Rs. 1300 crores ($231.5m) last year and this year is forecasting revenues in excess of Rs. 1700 crores. The company intends to double this in the next four years, according to Sarkari. It said it spends in excess of Rs. 1000 crores on transport services for various customers, something that will grow in line with its revenue targets.
However, this will not be easy given the level of competition Mahindra Logistics faces on the international stage.
“Doubling revenues in four years in the context of an emerging market like India is not very difficult,” noted Ramakrishnan. “In India if companies do not grow by 25% year-on-year then it’s a serious issue, but a CAGR of 22-23% could be earth shattering in a European or US context where companies are struggling.”
For parent company Mahindra & Mahindra, the stated reduction in dependency of its logistics subsidiary raises the question as to whether it will seek logistics services from other logistics service providers. This is a certainty, according to Ramakrishnan, who said that the company will shop around for other LSPs to enhance business and global reach as well as balance its in-house versus outsourced logistics.
“Mahindra is growing it vehicles business internationally,” said Ramakrishnan. “A year or so back they took over South Korea-based Ssangyong Motors. It is a $10 billion conglomerate with interests across automotive, commercial vehicles, tractors, off highway vehicles, two-wheelers, financial services, as well as auto and industrial components. It is also involved in retail, SEZs, construction, IT and ITES among others. There are bound to be opportunities for other logistics companies to work with Mahindra group,” he confirmed.
Ramakrishnan added that growth has been slowing in India but that Mahindra had done well in the automotive sector.
“Reducing logistics business revenues is probably due to management issues that could have set back the company growth plans,” he said. ”The logistics business contribution is a small percentage of total Mahindra business and may not materialistically impact the parent organisation.”