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Mahindra Logistics, which gets higher margins from its warehousing business instead of pure transportation, will be the “anchor customer” of several companies that are floating real estate investment trusts (REITs).
Effectively, it will lease huge space to build warehouses to expand in the space, Pirojshaw Sarkari, CEO, Mahindra Logistics told BusinessLine . It has already leased space to build large distribution centres in properties built through REITs - in Chakan, near Pune from Blackstone-backed Embassy Group; and in Tauru Road, near Gurgaon.
Post-GST implementation, in the last six months, Mahindra Logistics has built 6.5 lakh square-feet of warehouse space. It has set a target to build one million square-feet by the year-end, and expand to five million square-feet in the next three years.
Taking orders
“We place orders in advance – when they are building the warehousing complex. Over the next six-eight months, we sub-sell the space to our customers for managing space. So, by the time the distribution space is in place, we have tied up with our customers, who are ready to move in. Otherwise, we have to pay rent on the space that we have occupied (without getting revenues from Mahindra Logistics' customers),” explained Sarkari.
Mahindra Logistics takes the warehousing spaces – which are now termed regional distribution centres – for “long term lease” of “five years, extendible by another five years”.
The ₹3,400 crore company is on the cusp of booking an annual revenue of ₹4,000 crore, and feels it will be able to maintain a margin growth of 50 basis points year-on-year over the next few years. “It registered a 50 per cent net profit growth in the first half this fiscal, on a 10 per cent top line growth. The sharp net profit growth was driven by opportunities in value-added services – like warehousing and in-factory movements,” said Sarkari.
“In the last eight months, many large customers have approached us wanting to set up regional distribution centres (RDCs), which serve more than one state,” he added.
Fuel Index
That said, the daily change in fuel prices has emerged as a big challenge for the companies in the logistics space. “We are talking to the department of logistics to work out a fuel cost index so that the freight charges agreed to between the customers and logistics players can be finalised through an index,” said Sarkari.
The logistics department under Ministry of Commerce has also set up a logo of “two doves”, which Mahindra Logistics feels can be put to greater use. “We are working with the department to finalise criteria for logistics firms that can be certified and use the logo of “two doves” on their documents. The criteria, yet to be finalised, will include liquidity, skill-set of employees, use of technology and visibility provided to clients, among others.
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