Mahindra Logistics Ltd Management Discussions.

Management Discussion and Analysis

OVERVIEW

Mahindra Logistics Limited (hereinafter referred to as MLL, the Company, We, Our) is one of Indias largest third-party logistics (3PL) solutions providers. We provide a wide range of customised, technology-enabled integrated logistics solutions and enterprise mobility services. Our strength lies in our wide bouquet of offerings enabled by our extensive network of strategically located warehouses and pan-India transportation network.

We operate an asset-light business model, whereby, the assets, i.e., vehicles and warehouses necessary for our operations are owned and/or provided by a large network of our business associates. This technology enabled, asset-light approach enables scalability and flexibility of services to offer customised logistics and mobility solutions to our customers across diverse industries.

We operate in two distinct business segments, Supply Chain Management (SCM) and Enterprise Mobility Services (EMS). Within the SCM business, we provide 3PL and network transportation services to our clients. In Enterprise Mobility, we provide Employee Transport Management Services (ETMS), on call as well as airport services.

SCM business: We operate through a pan-India network, comprising 14 offices and 500+ clients and operating locations. We have a large network of 1,100+ active and longstanding business associates who support us with vehicles, warehouses and other assets and services.

Our operations in the SCM business comprise two large groups. In our core 3PL business, our endeavour is to offer customised, end-to-end logistics solutions and services, including inbound line-haul transportation, in-plant logistics, distribution, warehousing and value-added services to our clients. In the network transportation services, we are focused on B2B express/PTL, freight forwarding and last-mile delivery, including EVs. In these segments we are working to operationalise a standardised technology-enabled service ecosystem through which to deliver services to a range of customers. We are uniquely positioned to leverage and integrate our 3PL business and network services to provide integrated solutions, which strikes the right balance between customisation and scalability.

We serve 300+ domestic and multinational companies operating across industry segments, including automotive, engineering, e-commerce, consumer goods, pharmaceuticals, telecom, and commodities. We have expertise in providing scalable and customised solutions in fulfilment, warehousing, stores and linefeed, yard management, contractual workforce management, just-in-time services, aftermarket logistics, layout, and process design support, returns processing and distribution, and cross-border logistics.

We manage 17.5+ million sq. ft of warehousing space spanning our pan-India network of multi-user, built-to-suit warehouses, stockyards, network hubs and cross-docks. We operate infactory stores and linefeed at 40+ manufacturing locations. Our express network serves 16,000+ pin codes through 30+ hubs located across India. We operate a fleet of 550+ eDeL EVs, enabling sustainable last-mile delivery to 1,100+ pin codes across 15+ cities. These EVs have cumulatively covered 7 million+ km in the last one year of their operation and saved 1,000+ tonnes of CO2 emissions. We acquired 36% stake in Hyderabad based ZipZap Logistics Private Limited, a tech-enabled, last-mile logistics service provider operating under the Whizzard brand. This association will complement MLLs existing last-mile delivery business and eDeL. Whizzard operates an intra-city distribution network for digital commerce and last-mile delivery. Whizzard currently enables seamless handling of 60 million packages per year, across diverse segments. It has grown 10X in the last three years and serves customers with its full-stack digital capabilities and micro-distribution centres catering to 3,000+ pin codes.

We have sourced and developed our customised technology systems to provide innovative and cost-efficient solutions to improve transparency and visibility for our clients. With deep understanding of customer needs gained from serving them across diverse markets, we have established solution designs and development processes to specifically cater to complex requirements of our customers supply chains. Through our portfolio of offerings across sectors, we have emerged as a one-stop shop for our customers, with capabilities to design, execute, improve, and optimise logistics related activities across the value chain.

We have a fleet of 550+ eDeL EVs, enabling sustainable last-mile delivery to 1,100+ pin codes across 15+ cities. In association with Whizzard, we will complement and strengthen our existing last-mile delivery business and eDeL.

Our EMS business: We provide technology-enabled people transportation solutions and services across India to 120+ domestic and multinational companies operating in the Information Technology (IT), Information Technology-enabled Services (ITeS), Business Process Outsourcing, Financial Services, Consulting, E-commerce and Manufacturing industries.

Our spectrum includes on-call, green-fleet, event transportation and subscription services. We offer these services through a fleet of small and mid-sized vehicles, sports utility vehicles, electric vehicles (EVs) and buses through a large network of 325+ business associates across 15+ cities. Alyte, our nation-wide brand for mobility services, supports employee transport management, customer and network management, utilising a common asset pool to drive efficiencies. We offer fully integrated technology services such as application-based interactions for route planning and optimisation, round-the-clock control tower operations (CTO) for tracking vehicles and passengers, and EV telematics. To create a differentiation in the Enterprise Mobility market, we strengthened our focus on safety, hygiene and compliance. Some of the measures we undertook in this regard include multi-level safety and compliance checks, safety trainings, rewarding and recognising our employees and drivers for building a culture of safety, detailed incident analysis and reporting, among others.

We recently entered into a Share Purchase Agreement to acquire Meru Cabs, a ridesharing company founded in 2006. Meru has a significant presence in the airport ride hailing segment and provides on-call and employee mobility services to corporates in India. Meru also has several electric vehicles in their fleet. This acquisition will unlock significant synergies through the leveraging of the combined capabilities of Alyte and Meru in supply, technology management and electric mobility as well as in enabling services to our B2C and enterprise customers. This would also be enabled with an expanded portfolio of services like airport ride-hailing, on- call, outstation and B2B2C mobility delivering on a promise of safety, customer excellence and sustainability.

With the acquisition of Meru Cabs, MLL will enhance its range of mobility solutions with strategic focus on enterprise customers and electric mobility

Subsidiaries and joint ventures Lords Freight (India) Private Limited (Lords), our 99.05% subsidiary, provides international freight forwarding services for exports and imports, customs brokerage operations, project cargo services and air charters. With an established global network of agents in China, South Korea, Southeast Asia and Western Europe, Lords has developed capabilities in providing end-to-end cross-border services, including freight movement through ocean and air, custom clearance, transportation to transit warehouses and mother warehouses.

2x2 Logistics Private Limited, our 55% subsidiary, provides logistics and transportation services to original equipment manufacturers (OEMs) to carry finished automobiles from the manufacturing/assembly locations to stockyards or directly to the distributors through specially designed vehicles. It owns and operates 150+ vehicle carriers and has us as its primary customer.

Transtech Logistics Private Limited (Transtech Logistics), a joint venture, offers ShipX, a SaaS (Software as a Service) based transport management solution (TMS) platform to 3PLs and shippers. We acquired a strategic stake (39.79%) in Transtech Logistics during FY19.

ZipZap Logistics Private Limited (Whizzard), an associate company, is a tech enabled last-mile delivery logistics company, which operates an intracity distribution network for digital commerce and last-mile delivery services. With its full-stack digital capabilities and over 125 micro-distribution centres, Whizzard caters to 3,000+ pin codes across India. We acquired a 36% stake (on fully diluted basis) in Whizzard on 8th April 2022.

A. INDUSTRY OVERVIEW AND TRENDS

A.1 Overview of the Global economy

The global economy showed early signs of recovery in the beginning of 2021. However, it has since faced headwinds amid fresh threats from Covid-19 variants and a rise in inflation slowing down recovery across emerging economies. Despite signs of moderation, record numbers of daily infections in several countries and consequent containment measures further strained economic activity. Rising energy prices and supply chain disruptions have resulted in higher than anticipated inflation. Developing economies were severely impacted by boom-and-bust cycles of commodity prices, leading to increase in input costs. Global trade hit record high of $28.5 trillion in 2021, but it is likely to be subdued in 2022 in the backdrop of the Russia-Ukraine war, as efforts to streamline the supply chains and diversify suppliers could affect global trade patterns. Governments and central banks across the world are mulling over policy response to curb the rise of inflation. According to the World Banks latest report, global economic growth is expected to moderate from 5.5% in 2021 to 3.2% in 2022 due to the impact of the Russia-Ukraine crisis and higher food as well as energy costs across the world.

A.2 Overview of the Indian economy

The last two years were challenging for the Indian economy on account of repeated waves of Covid infection, supply-chain disruptions, volatile oil and commodity prices and rising inflation. The Government of Indias response was to build back short-medium term demand through significant increase in capital expenditure on infrastructure. Supply-side measures were implemented to prepare the economy for a sustained, long-term expansion.

As per latest estimates from the Ministry of Statistics & Programme Implementation, the Indian economy was expected to witness real GDP growth of 8.9% in FY22, after contracting by 7.7% in FY21. High frequency indicators showed positive signs, raising both business and consumer optimism. Factors such as rail and freight activity, passenger traffic, power consumption, e-way bills and Goods and Services Tax (GST) collections showed a rising trend. Total consumption is estimated to have grown by ~7% in FY22. Indias exports crossed the USD 400 billion mark for the first time in history, and imports recovered strongly owing to the recovery in domestic demand.

Over the course of the year, India vaccinated ~60% of the eligible population with both doses and ~70% of eligible population with one dose. With the vaccination programme having covered a bulk of the population, building back of economic momentum, and the likely benefits of long-term reforms in the pipeline, the Indian economy is poised to grow at around 8.2% in FY23 as per the latest IMF report. Key risks to the growth outlook include further escalation of Russia-Ukraine conflict, rise in commodity prices, higher inflation and global growth slowdown.

With the vaccination programme having covered the bulk of the population, building back of economic momentum, and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth of 8.2% in FY23

A.3 Indian Logistics industry - Size & Structure

The logistics sector plays a vital role in facilitating economic activity and trade movement in the country. The sector was estimated to be at ~ 13,50,000 crores in FY21 and is expected to reach ~ 24,00,000 crores by FY26 growing at ~10% CAGR. Short-term growth was impacted due to Covid-induced disruptions, but the longterm outlook for the sector remains buoyant.

Based on service offerings, the logistics sector can be sub-divided into road transportation, freight forwarding, warehousing and value-added services and other logistics services such as container logistics, cold chain logistics, coastal shipping, and so on. Road transportation dominates Indias logistics spends, given the reliance on it and the countrys vast landscape. The road transportation segment can be further divided into inbound transportation, outbound transportation and distribution, express and last-mile transportation.

We operate in the 3PL space and provide customised transportation services, including line haul, mid-mile, last mile, express and distribution, and freight forwarding services. Our total addressable market, including 3PL and other services is currently ~ 1,10,000 crores. The 3PL market is estimated to be ~ 65,000 crores in FY21. It is expected to register a ~15% CAGR and potentially become an Rs.1,50,000 crores market by FY26. Globally, the organised 3PL market is ~10% of the overall logistics market. In India, it is ~5%, indicating significant room for 3PL adoption. The 3PL market is largely fragmented, with top 10 players commanding a cumulative market share of only ~15%. There are many regional players providing transactional services in transportation and storage. We believe that as the industry matures over the next few years, there will be a significant shift from pure-play transportation and warehousing services towards sophisticated, high-value and integrated logistics solutions.

The key sectors served by 3PL players include auto and auto ancillary, consumer goods, specialised transportation for certain metals and minerals products, e-commerce, engineering and capital goods, pharma and telecom. Engineering and auto activities remain largely inbound focused, whereas e-commerce, telecom, pharma and consumer sectors have a high share of outbound and distribution logistics.

Typically, outbound logistics is more complex and costly vis-a-vis in-bound logistics, considering the last-mile delivery of final products to various stores and outlets and high replenishment cycles. The auto industry is a notable exception due to its complex inbound supply chain. There is significant scope for increased 3PL usage within these sectors as they require better supply chain management and exceptional logistics practices to compete effectively. Value-added services also demonstrate high potential as activities such as packaging, labelling and quality control, among others are increasingly outsourced to focus on core business activities of procurement and sales.

The freight forwarding market is estimated to be between Rs.28,000 and Rs.30,000 crores in India and is projected to grow at CAGR of 12% over the next five years. The countrys growing international trade lent significant impetus to freight forwarding demand. Ocean freight constitutes a bulk of the freight forwarding market, but air freight gained share steadily. The key industry segments contributing to the freight forwarding market are food and food processing, pharmaceuticals, engineering, textiles, chemicals, and auto industries. The sector is expected to grow steadily over the medium to long term on account of the governments push towards infrastructure development, manufacturing self-reliance under the Atmanirbhar Bharat vision, growing imports and exports, and major companies adopting a China+1 manufacturing strategy.

The Indian freight forwarding market has traditionally been highly fragmented, dominated by unorganised entities providing basic services such as brokerage and documentation. However, the sector recently started witnessing transformation, with the use of technology by both new-age start-ups and established players to enhance cargo visibility, reduce errors by digitising documentation processes and bring in transparency in pricing.

There will be a significant shift from pure-play transportation and warehousing services towards sophisticated, high-value integrated logistics solutions

A.4 Key government initiatives

Logistics cost as a percentage of GDP for India stands at ~14%, significantly higher than those in developed countries (7-8%). This can be attributed to certain inefficiencies in the industry, such as lower transportation speed, higher transit inventory, theft and damages and a skewed modal mix. Currently, road accounts for ~70% of transportation (by volume), while rail, ocean and air collectively account for the remainder.

The government aims to cut logistics costs by 5% over the next 5 years and has undertaken several development measures to that end. Some of the key initiatives are enlisted below:

Infrastructure status: Logistics sector was granted infrastructure status in 2017, allowing the sector to have access to funds at easier terms with enhanced limits.

National Logistics Policy: The NLP is being worked out with the objective of developing a fully integrated logistics network with best-in-class technology and automation. The policy will enable the creation of a single point of reference for all logistics and trade facilitation matters in the country, functioning as a knowledge and information-sharing platform. This will facilitate higher efficiencies and drive down logistics costs.

Gati Shakti Masterplan: PM Gati Shakti Masterplan was launched by the Government of India in 2021 with the purpose of creating a world-class, seamless multi-modal transport network in India by

i. Getting rid of red-tapism by centralisation of different ministries through higher cross sector interaction

ii. Identifying critical gaps and synchronisation scope for activities from different departments to reduced silos

iii. Ensuring a one-stop platform for data availability, enabling better planning and analysis

Dedicated freight corridors: This project involves construction of the Eastern and Western Dedicated Railway Freight Corridors (DFCs), having a cumulative length of over 3,000 km. It aims to reduce overall logistics cost by improving average speed of the rail freight trains, increasing the freight carried per trip and linking of ports for faster freight movement.

Bharatmala Pariyojana was launched to bridge critical infrastructure gaps through the construction of 9,000 km of economic corridors, 6,000 km of feeder routes, 2,000 km of coastal roads, and so on under Phase 1 of the project. Progress on the project was delayed due to the pandemic as well as issues related to cost overruns and land acquisition. It is expected to be completed by 2026.

Sagarmala programme is underway to reduce logistics cost for domestic and EXIM trade by harnessing Indias long coastline and navigable waterways. Over 500 different projects related to port modernisation, connectivity enhancement, coastal community development, and port-led industrialisation were identified and are under various stages of implementation.

Logistics Efficiency Enhancement Program (LEEP):

LEEP was initiated by the Ministry of Road Transport and Highways to improve logistics efficiency of the country by developing multi modal logistics parks across 15 cities with the highest freight movement (covering over 40% of the total road freight movement in India). These multimodal logistics parks are expected to serve four key functionalities:

i. Freight aggregation and distribution

ii. Multimodal freight transportation

iii. Storage and warehousing

iv. Value-added services such as customs clearance and warehouse management services

Production linked incentive scheme: The PLI scheme is a major policy initiative by the GOI with an outlay of ~1.97 lakh crores in subsidies and incentives to boost manufacturing across 13 critical sectors.

Drone Policy: The drone policy was drafted to improve the ease of doing business by simplifying and relaxing the certification, authorisation, and permit processes. This makes it easier for companies to deploy drones for commercial purposes.

In addition to the above, initiatives were due in areas of labour policies, poor last-mile connectivity, land acquisition hurdles, promoting the use of technology and driving standardisation across the sector.

The governments initiatives like Gati Shakti Masterplan, will bring down Indias higher logistics spending as a % of GDP (~14%) as compared to developed countries (7-8%), by reducing inefficiencies such as lower transportation speed, higher transit inventory, theft and damages and a skewed modal mix.

Development of 3,000+ km dedicated freight corridor will accelerate modal shift and cut rail freight cost and time

A.5 Key trends impacting the sector

The pandemic affected the sector in both positive and negative ways. On one hand, it has increased financial pressure several companies in the industry, especially transporters. On the other, it accelerated some key transformations within the sector as highlighted under.

Changing channel landscape driven by changing customer behaviour

Todays customers are more informed, seek better experience and prefer to have the option of purchasing across all sales channels with consistent experience across them. Supply chains across industries are witnessing a paradigm shift to new channels like e-commerce, which has registered 3x growth compared to traditional retail channels, and emergence of Direct to Customers (D2C), Direct to Retailers (D2R) and Direct to Kirana (D2K) models. These shifts necessitated new models of production, storage, and distribution. Logistics players must build capabilities around distribution, fulfilment, last-mile delivery and utilisation of technology in inventory management and optimisation, customer data analytics, route optimisation, among others to fulfil growing customer expectations. With tier-II and tier-III cities fast emerging as substantial demand centers, there is a need to serve these geographies though a network of warehouses, part-truck load (PTL), express distribution network and strong last-mile delivery capabilities.

Increasing adoption of multi-modal logistics

Over the past year, several large Indian and multinational companies made significant investments in developing multimodal capabilities. The pandemic accelerated the need to leverage rail, sea and waterways more effectively to optimise logistics costs.

In many of our key end markets such as Auto and Farm, there was increased adoption of multi-modal logistics. We expect a steady shift from road transportation to other modes driven by favourable government initiatives (Gati Shakti), infrastructure build-up (dedicated freight corridors), and increased customer awareness. The share of road transport in bulk and auto outbound sectors will be significantly impacted by multi-modal systems.

Cross-border supply chains became a key focus area for many companies to facilitate global trade. The pandemic made most companies realise the need to improve resilience, real-time visibility, and end-to-end management of their cross-border supply chains.

Increased demand for cross-border logistics

Global trade flow was significantly impacted by Covid and the recent Russia-Ukraine war. This intensified the need for companies to enhance supply chain resilience by diversifying manufacturing activities geographically (China+1). India stands out as an attractive option for manufacturing, owing to its strategic location, a large domestic market, low labour costs, and production linked incentives announced by the government. The government has also been negotiating bilateral trade agreements with 20 nations. This creates an opportunity for freight forwarders to expand their footprint into crossborder trade.

Integrated services and offerings

To manage increasing supply chain complexities, companies are looking at improving the overall efficiency of their logistics operations, and reducing costs through optimised network footprint, optimised inventory, deployment of best-in-class digital tools, higher degree of automation, and standardisation of operating procedures and practices across their entire network. To achieve this, many companies are now seeking strategic partnerships with logistics players to deliver on network optimisation, cost optimisation, service fulfilment and customer delight. Therefore, logistics players are trying to fill portfolio gaps, integrate new service offerings to expand their wallet share with such customers. The 3PL companies are developing competencies in providing express distribution and freight forwarding services through acquisitions and partnerships. Large shipping lines or port players are developing capabilities in inland transportation and storage, while large pure-play transport and warehousing players are straddling the value chain and redefining their service levels. Private equity funded start-ups are expanding across segments to become a one-stop shop for all logistics solutions.

Technology integration to drive efficiencies

In the post-Covid environment, there is sharper focus on improving the predictability of supply chains. Customers are now focusing on granular and multivariable dimensions of their supply chains. As a result, end-user industries and Logistics Service Providers (LSPs) are focusing on supply-chain orchestration by enhancing their customer engagement experience through digital platforms, building operational flexibility and speed to address changing requirements with significant investments in the IT infrastructure. Several new-age service providers have emerged over the course of last few years, offering digital technologies, such as blockchain, robotics, automation, and predictive analytics to support innovative business models.

We believe that technologies like Internet of Things (loT), drones, automated guided vehicles (AGVs), augmented reality (AR), 3D printing, and marketplace platforms will see greater adoption in the future.

Sustainability emerging as business-critical

Amid global concerns around climate change, sustainability is emerging as a topic of strategic importance across major industries. Organisations are assessing the social and environmental impact of their supply chains. Logistics forms a core element of any enterprise activity and has a high carbon footprint. Hence, companies are adopting decarbonisation strategies and pushing for greener business solutions. The government is also focusing on decarbonising the transportation sector and aims to have EV sales penetration of 30% for private cars, 70% for commercial vehicles and 80% for two and three wheelers by 2030.

Demand for Integrated fulfilment logistics will gain momentum as supply chains increasingly become more complex on the back of strong growth of e-commerce, omnichannel retail and emergence of Direct to Customers (D2C), Direct to Retailers (D2R) and Direct to Kirana (D2K) models.

A.6 Enterprise mobility services - size and structure

The Indian mobility market was estimated Rs.1,45,000 crores before the pandemic. It is divided into B2B (valued at Rs.20,000 crores) and B2C (valued at I 1,25,000 crores) segments. About 85% of the B2C market is a local taxi market, which is highly fragmented and, therefore, remains non-addressable. Our addressable market, including employee transport, car rental, airport, outstation, and ride-hailing segments is estimated to be at between 35,000 and Rs.40,000 crores. Restrictions on mobility during pandemic, and widespread adoption of hybrid working policy led to a significant shrinkage of the B2B market in the short-medium term. Mobility in IT, ITES, BFSI and Consulting sectors were impacted more severely compared to other sectors and we expect the market to recover to pre-Covid levels over the next three to four years.

MLL, through its brand Alyte, operates in the B2B segment of employee transportation services and car rentals. IT, ITeS, financial services, e-commerce and manufacturing sector clients are the primary target customer segments for the enterprise mobility services. The market is highly fragmented and is primarily served by local and regional players. We envisage a significant degree of consolidation in this market, enabled by rising service quality and safety requirements and growing demand for green transportation solutions, which local players find challenging to provide.

Our acquisition of Meru Cabs will enable us to grow presence in the shared mobility space and consolidate the mobility business ownership. With this acquisition, we will enhance our range of mobility solutions with strategic focus on enterprise customers and electric mobility.

A.7 Key trends impacting the enterprise mobility sector

Increased adoption of Electric Vehicles (EVs) for corporate mobility needs

The government took multiple initiatives to promote manufacturing and adoption of electric vehicles. Key policy frameworks that were launched include National Electric Mobility Mission Plan 2020 and Faster Adoption and Manufacturing of (hybrid and) Electric Vehicles (FAME). From a total cost of ownership perspective, EVs have become comparable to conventional fuel vehicles, especially after the adoption of the more stringent BS-VI regulations. The availability of adequate charging infrastructure was the key impediment in accelerating the adoption. Several private players, including oil marketing companies stepped in for expeditious deployment of EV charging infrastructure, which led to significant improvements across the country. In line with the governments eff?rts and improving charging infrastructure, corporates as well as individuals are increasingly adopting EVs for their transportation requirements.

Service innovation to enhance user experience

Security and safety are integral elements of enterprise mobility services, especially considering heightened health concerns. As the industry matures, there is also a push to provide the best user experience through a greater degree of freedom and flexibility extended to employees to directly schedule, book and bill for their transportation needs with minimal corporate intervention. This trend is birthing several new mobility models such as B2B2C subscription-based offerings and on-demand car rental platforms. This is also leading to increased service standards and bundling of services to provide seamless experience to the end user.

Disintermediation across value chain

Both consumers and competitors are working towards removing or reducing intermediaries from their operations. Many players in this segment have invested in technology platforms and done away with the traditionally outsourced roles of trip management, route optimisation, and so on.

Long-term shift to hybrid work model

As per an industry report, many companies shifted to flexible workspaces for ~20-25% of their workforce after positive experiences with remote working during the pandemic. This move will reduce the demand for employee transportation services. Likewise, extensive use of videoconferencing during the pandemic has ushered in a new acceptance for virtual meetings, which may further dent business travel and employee transportation services.

Service line expansion by competition

Popular ride hailing companies like Ola and Uber focused on employee transportation services. They introduced new commute options for corporates to support employees returning to work, enabling them to book rides together to travel to work as well as business charter services, whereby companies can reserve a dedicated fleet of vehicles provided by third-party fleet partners for their employees and customers.

Similarly, other B2B players offering employee transportation services are expanding to on-call and outstation services. Rapid metro infrastructure expansion is also leading to innovative service lines like micro-mobility, for transportation to and from the metro/rail/bus stations.

Mobility continues to see widespread acceleration to EVs with a growing presence in 3W and 4W.

With higher utilisation and challenges of urban transportation, mobility remains a high adoption use case for electrification. With the addition of Meru, we now have over 250 EV sedans in our fleets.

B. Performance of our key focus markets

While FY22 witnessed a recovery in industrial activity across sectors, across most sectors, it was slower than anticipated. The 2nd and 3rd Covid waves in May and December, respectively, combined with other sector- specific challenges were contributors to this slower recovery. Sectors such as Consumer and e-commerce recovered quickly after the short-term shocks witnessed due to the recurrent waves, however, sectors such as Mobility, Automotive and Commodities are following a gradual recovery path.

1. Auto sector: The auto industry had a challenging year given the second wave impacting Q1 and semiconductor shortage leading to significant production losses in Q2 and Q3. Domestic auto sales (PV, CV, 3Ws, 2Ws) registered an overall decline of 6% in FY22 vs FY21

2. Farm sector: Strong domestic sales momentum in the first half of 2021 and sustained growth in exports over the past several months pushed the total domestic tractor production market past the 1 million mark and exports past the 1 lakh mark for the first time in 2021. However, tractor sales remained subdued in the latter half of the year due to high base of last year, erratic rainfall in some geographies and high commodity prices. Domestic tractor sales witnessed an overall decline of 6.4% in FY22 compared to FY21.

3. Consumer sector: As per a Nielsen Report, the FMCG industry witnessed a consumption slowdown in urban markets and de-growth in rural areas in 2021, as the sector was hit hard by high inflation levels forcing companies to go for successive price increases. Demand for discretionary items were also moderated.

Consumer buying patterns changed significantly over recent times, owing to the pandemic, with significant move to online and omni-channel transactions. The internet ecosystem and evolving consumer needs made new business models viable and led to the emergence of the direct-to- consumer (D2C) distribution channel. D2C and brand websites witnessed over double the growth of online marketplaces.

Pharma sector witnessed a strong demand from domestic and emerging markets and is estimated to have grown by 9-11% in FY22 as per an ICRA report.

Logistics for the Telecom sector remained sluggish, despite estimated double-digit growth in the sector. Most of our customers are working on 5G upgrades and, therefore, current network expansion and upgradation remained sluggish. We expect that there will be a demand spurt soon as companies start accelerating towards 5G.

4. E-commerce sector: There has been a sharp growth in festive volumes across e-commerce marketplaces, with the GMV of leading marketplaces growing by over 20% YoY despite a curtail on deep discounting. Discovery and purchase of products through social media (social commerce) continues to rise, primarily led by tier-2 and tier-3 cities. E-commerce players reengineered their supply chains to provide lightning-fast deliveries as demand for online grocery and pharmacy shopping saw a major uptick during FY22. We also witnessed shorter peaks, and significant demand dispersion during the year. The segments growth accelerated the demand for transportation and fulfilment logistics, including sortation, fulfilment centres, return processing and last- mile delivery.

5. Discrete manufacturing and capital goods sector:

Performance and sentiments in the manufacturing sector improved in the latter half of FY22 with more businesses reporting higher production and an increase in order book. However, cost of doing business remains a cause for concern for the sector. High raw material prices, high cost of finance, uncertainty of demand, shortage of working capital, high logistics cost, low domestic and global demand due to supply chain disruptions, excess capacities due to high volume of cheap imports into India, high power tariff, are some of the major constraints affecting growth of the sector.

6. Freight Forwarding: The industry has been in a state of flux even before the pandemic, impacted by US-China trade relations and rising fuel costs. In FY22, it settled into a volume recovery phase after a period of contraction. Global trade lanes are witnessing rebalancing due to in-shoring and protectionism measures adopted by various countries, major companies adopting a China+1 manufacturing strategy, Russia-Ukraine war, and commodity shortages impacting trade movements. Global trade imbalance also resulted in port congestion, container shortages, which led to a sharp rise in sea freight rates. This resulted in increased demand for air cargo and charter services. The growth of the air cargo market was aided by increased demand for faster delivery of cargo (especially pharmaceuticals and cross-border e-commerce). All major freight forwarders reported significant revenue and margin uptick during the year. Outlook for the Indian freight forwarding sector remains buoyant driven by manufacturing push, recovery of demand, and rapid infrastructure development.

7. Mobility sector: Enterprise mobility remains severely impacted by the pandemic. While most companies are reopening and resuming offices, a large portion of the workforce is expected to be moved to a hybrid working model (especially in the IT/ITES segment), which will result in slower recovery in the enterprise mobility business than expected. While these headwinds continue to impact our operations, we made an aggressive effort to add customer accounts in segments such as manufacturing and e-commerce among others to offset the sharp decline across the IT/ITeS and banking segments, which have traditionally been our core markets. A full recovery in these traditional segments might take longer, but our long-term outlook for shared mobility remains positive.

B.1 Response to Covid-19

In the last two years, we adopted several proactive and preventive measures across our locations to ensure employee safety. The incident management teams established in FY21 continued to work at all locations, lending support to employees in need as well as their families. Oxygen concentrators were procured and deployed at multiple locations across the country to ease the availability of oxygen for emergency use. Home counselling and home diagnostic medical facilities for employees and their families continued to be operational in FY22. Our Covid Response teams, tasked with monitoring and tracking all Covid cases and assisting with hospitalisation and medical support in critical cases, were functional across locations.

Vaccination drives were carried out across our sites throughout the year to ensure vaccination of employees, their spouses as well as our business associates. As of 31st March, 2022, 92% of our employees and 80% of our business associates are fully vaccinated.

Financial support measures launched last year continue to remain in place to support our employees in critical cases. In case of death of an employee, an ex-gratia compensation is paid out to the nominee of the deceased employee. We supported the education of the deceased employees children up to senior secondary level.

As a community support measure, we started an initiative called Oxygen on Wheels to strengthen oxygen availability by connecting oxygen producers with the hospitals and medical centres in dire need of it. Under this initiative, 100+ vehicles were deployed to overcome the transportation bottleneck, with safe and quick transportation to deliver oxygen cylinders on-demand and ease the dearth of life-saving oxygen. We started an initiative called HOPE to provide financial assistance to our driver associates and launched a national helpline for employees and drivers.

C. Opportunities and challenges

C.1 SCM Business Opportunities

Opportunity to address growing demand from tier- 2/tier-3 cities through a network of built-to-suit (BTS) warehouses

Companies have been consolidating their supply chains following GST implementation and this has led to leasing of large-format warehouses. Consumer, retail, and e-commerce companies were driving the demand for Grade A modern warehouses. There has been significant uptick in demand for consumer products from tier-2 and tier-3 cities due to rising disposable incomes and share of elite and affluent households. This presents us with an opportunity to serve these geographies by building state-of-the-art, energy-efficient network of built-to-suit (BTS) warehouses across strategic locations in India.

Opportunity to take advantage of growing demand for fulfilment and forward logistics solutions in consumption-led sectors

Increasing digital adoption has led to a rise of omnichannel retailing. This is necessitating several companies to redesign their supply chains. Small businesses and new brands are also increasingly going Direct to Customer (D2C), while larger brands are starting their own online brand stores and exploring Direct to Kirana (D2K) channels. With an increasing number of channels, companies are facing a challenge in managing the complex requirements to support B2B and B2C fulfilment. This has presented LSPs with the opportunity to provide integrated fulfilment and distribution solutions, including express and last-mile delivery. We are also witnessing a rising trend of quick commerce (10 to 30 minutes delivery) across segments like food, pharma and grocery. This, in turn, is fuelling the demand for micro fulfilment centres located near key consumption pockets. With significant experience across consumption-led sectors, a strong tech-base and diversified service offerings, we are well positioned to take advantage of this opportunity. The acquisition of Whizzard will enhance our presence and capabilities in the last-mile delivery and fulfilment services segment. Expanding technology based last-mile services is an integral element of our growth strategy and this transaction will help accelerate addition of technology, geographical coverage, and operational capabilities.

Opportunity to offer multi-modal services to our customers

To improve Indias logistics efficiencies and reduce logistics cost, the government launched the Gati Shakti Masterplan to promote the use of multi-modal logistics. We are witnessing linkages of ports, rail and road through the hub and spoke model; and creation of logistics parks around Dedicated Freight Corridors (DFCs). Several companies were exploring the option of transporting goods via other modes like rail, inland waterways, or sea/coastal shipping to drive down their overall logistics costs. We have been offering multi-modal services, e.g., rail transportation to auto outbound customers; and are constantly evaluating the scope of expansion of these services to customers across other sectors as well.

Opportunity to capitalise on growing demand for cross-border logistics

I ndian exports and imports are continuously growing as a result of strong economic recovery and improved competitiveness. This trend is expected to pick up momentum due to companies choosing India as a preferred destination for manufacturing (China+1), and boost to manufacturing through Atmanirbhar Bharat vision and the PLI scheme. This will lead to an increased demand for freight forwarding services. Through our subsidiary Lords Freight, with end-to-end capabilities in freight forwarding, we are well poised to take advantage of this opportunity. We are looking to expand presence in domestic and international markets, and into services like customs broking to ride this wave.

Services and technology Integration

Owing to increasing supply chain complexities, customers are demanding integrated and managed logistics services. As a result, LSPs are also evolving to move up the value chain by providing tailor-made solutions to cater to specific needs of each sector, thereby expanding their share of wallet. Companies are exploring the use of self-guided vehicles, drones, robotics, augmented reality, IOT and Big Data to improve operational efficiencies. Integration of edge level technologies and predictive intelligence in the service offerings can become a point of differentiation for LSPs. To drive innovation, we launched the 2nd edition of the start-up incubation programme, CATAPULT 2.0, under which, we partnered with promising start-ups to develop and scale innovative logistics solutions.

Sustainability

Sustainability is emerging as a topic of strategic importance across major industries Organisations are being assessed for the social and environmental impact of their supply chains Logistics and transportation are a key contributor to overall carbon footprint, estimated at as much as 13%-15% in India. We deployed eDeL EVs for last-mile distribution, which led to a significant reduction in CO2 emissions. We initiated various pilots in the areas of energy conservation and sustainable packaging to create a win-win for our customers and us. At MLL, we are focused on CO2 reduction, resource conservation and thought leadership. We joined the Science Based Targets Initiative (SBTI) to build a clear set of metrics, which can be transparently measured and aligned to specific projects, helping us realise our vision of becoming carbon neutral by 2040.

Our vision is to become Carbon Neutral by 2040 Challenges

Chip shortage impacting auto production

Chip shortage plagued the auto sector throughout FY22 and there was an estimated loss of 2.5 lakh units in terms of demand for new cars as per a Crisil report. Since our business is significantly influenced by the performance of the auto sector, we faced challenge in the form of softer demand from our auto customers. We estimate the shortages of chips and other components will likely continue till the 2nd half of FY23, following which we estimate a broad and sustained recovery.

Volatility in global supply chains

The combined impact of Covid-19, geopolitical issues, and supply chain disruptions impacted trade lane balances and availability of carrier and container space across many regions in the world. These factors have unfavourably impacted availability, and resulted in a sharp increase in prices during the past two years. A continuation of these factors will increase cost pressures, impacting demand across the regions. Many companies across the world are adapting their supply chains by either re-shoring or developing new supply sources. These factors open new demand avenues with our key customers.

Rising crude oil prices leading to high transport costs

Severe volatility in crude oil prices resulting in fuel prices reaching an all-time high in India impacted our transportation business in FY22. Crude oil prices continue to stay volatile because of global tensions and the Russia-Ukraine conflict.

Demand dispersion and shorter peaks

E-commerce companies witnessed shorter than expected demand peaks during major festive sales in FY22, thereby impacting the efficiencies of our sort centre and fulfilment centre operations. In non- e-commerce segments, we continued to see greater demand dispersion in terms of geographical demand patterns and category trends. These create greater pressure on supply chains to be agile and affect the utilisation of discrete facilities, as we witnessed for some periods in FY22.

Talent and labour challenges

Reverse migration of labour following the pandemic has had an adverse impact on our operations. During the 1st Covid peak, we witnessed a significant reverse migration of labour from urban areas to their homes in rural areas. A large portion of this workforce has not returned to urban areas even after business and commerce normalised. This created a shortage of labour, especially during demand peaks and increased labour costs due to demand-supply mismatch. As we focus on new capability development, creating the pipeline of talent in critical areas and enhancing the culture are critical levers, which could impact our long-term growth.

Warehousing supply challenges

The booming e-commerce market is fuelling the demand for Grade-A warehousing facilities. However, there is a shortage of such warehouses across key demand centres. Additionally, rise in prices of input materials like steel, cement, among others increased construction costs, but the rental yields have not kept up pace, thereby putting profitability pressures on warehouse developers and logistics services providers (LSPs) like us.

Volatility in global trade flows

Global demand-supply mismatch following the pandemic, triggered a worldwide shipping crisis, with sea freight skyrocketing to phenomenal levels due to shortage of containers owing to congestion across major ports in China, USA and Europe. This impacted the businesses of many customers as it led to increase in the overall costs and delay in order fulfilment.

Pricing pressure from customers

Rising input costs due to increase in commodity and crude oil prices made many of our customers focus on cost rationalisation. This led to increased pricing pressure on us. We are addressing this challenge by focusing on value addition and driving cost-reduction initiatives across the organisation.

Increased disintermediation across the value chain

New-age, technology-enabled start-ups with innovative business models are disrupting the logistics industry. Many of these platform-based start-ups use marketplace models and data analytics to drive down the overall logistics costs. This has led to an increase in transparency and operational efficiencies for customers.

C.2 EMS business Opportunities

EVs gaining popularity in the enterprise mobility market

The Government of India created favourable policies for the promotion of EVs under FAME-II. EV technology is well suited for mid-range shared mobility applications and several companies are fulfilling a part or entirety of their employee transportation needs using EVs. With companies focusing on moving towards a sustainable way of doing business, EV as a medium for employee transportation has gained a lot of traction lately. The availability of adequate charging infrastructure was a key impediment for accelerating the adoption of electric vehicles in India. Many private players, including oil marketing companies set up charging infrastructure across major cities and announced major expansion plans to alleviate this issue. Our acquisition of Meru with a fleet of EVs, will put us at an advantage to serve our existing and new customers, thereby driving the sustainability agenda.

Increased focus on user experience, safety, and compliance

Customer expectations from mobility service providers moved beyond cost to providing better user experience by allowing greater degree of freedom and flexibility to employees to directly schedule, book and bill for their transportation needs with minimal corporate intervention in a post-pandemic world. There is an enhanced focus on safety, hygiene, and compliance especially following the pandemic. This led to emergence of premium office commute services focused on providing best-inclass safety and compliance through extensive multilayered safety checks, driver trainings and data-based incident analysis and reporting. This presents us with an opportunity to build on our current services, add new services like B2B2C mobility, and further leverage technology to serve our customers better.

Challenges

Long-term shift to work from home for 20-30% of workforce

In the past two years, most businesses had their employees working from home. Companies are increasingly adopting a hybrid working model or moving to a permanent work from home option for some functions within their operations. Hybrid models and permanent work from home will slow down the recovery of enterprise mobility.

We diversified into new business segments to tackle this challenge and moved our focus from predominantly serving the IT/ITES and banking sectors to e-commerce and manufacturing.

Threat of substitution by mass urban transportation

We are seeing a rapid increase and improvement of the metro infrastructure within India over the last 2-3 years. All major metro cities have developed or are developing mass transportation options for their population. B2C players like Uber ventured into providing mass transportation options to B2B customers in the form of buses through a B2B2C model. We also extended our portfolio to include buses to provide end-to-end integrated services to B2B customers.

Threat of disintermediation

Technology-led aggregators are innovating and expanding their service offerings to create differentiation, are building their own fleet and working directly with fleet owners. Ride-hailing players like Ola and Uber upped their focus on providing corporate mobility services, thereby disintermediating the market.

D. SEGMENT WISE PERFORMANCE

The following is a table illustrating the breakdown of our consolidated revenue from operations, across the business segments that we operate in, for the periods indicated.

FY22

FY21

Segments Amount ( in crores) % of total revenue from operations Amount ( in crores) % of total revenue from operations
SCM 3,938.68 96.46% 3,144.64 96.35%
EMS 144.35 03.54% 119.08 03.65%
Revenue from operations 4,083.03 100.00% 3,263.72 100.00%

The following is a breakdown of the percentage of revenue from operations with respect to our products and services. Goods Transportation Services continue to be the largest contributor to revenues.

Service offerings FY22 (%) FY21 (%)
Transportation 62.36 67.18
Warehousing and value-added services 23.08 20.06
Freight Forwarding 11.02 09.11
Enterprise Mobility services 03.54 03.65
Total 100.00 100.00

E. BUSINESS STRATEGY

In FY20, we had defined our vision of becoming a Rs.10,000 crores logistics service provider by FY26, delivering exceptional customer experience through differentiated, technology-enabled solutions. To achieve this vision, we defined our strategy to grow in profitable markets through four core strategic platforms. Despite severe disruptions and challenges to the business, we executed on the intended strategies during the reporting year. These are listed in the sections below.

E.1 SCM business strategy

To succeed and grow in a market dominated by transactional services, we formulated our strategy to create differentiation via solutions around customer business problems by integrating multiple services, offering value-added services, and using data and analytics to deliver outcomes. Our strategy is to focus on high growth profitable markets of auto, engineering, consumer and retail, e-commerce and pharma sectors. We intend to grow in these profitable markets by focusing on our four core strategies as set out below:

1. Expand network services portfolio of B2B Express, Freight Forwarding and Last-Mile Delivery services

We provide diverse services across sectors like auto and auto ancillaries, engineering, consumer, e-commerce, pharmaceuticals, and commodities.

We plan on augmenting our offerings and addressing end-to-end needs of our customers through expansion of our service portfolio. Network transportation services have grown to 20% of our total revenue in FY22.

Express logistics witnessed significant growth in key sectors such as e-commerce, FMCG, FMCD, pharmaceuticals and auto ancillaries. As these sectors are of key focus for us, expanding our presence in express logistics would help us 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 fostering partnerships with global express firms.

Our Freight Forwarding business exhibited high growth during the year, although we hold a small market share in a large fragmented market. Cross-border logistics is a critical requirement for engineering, textile, pharmaceutical, e-commerce and auto customers. We are actively working towards expanding this offering through new customer acquisition, services expansion, like CHA licence, investing in best-in-class track and trace systems, among others. As global trade lanes get rebalanced in a post-Covid world, we are evaluating options to scale and de-risk the business through geographical expansion in domestic and international markets, relevant partnerships and acquisitions.

We built a network of warehouses across strategic locations in India and have developed strong surface transportation capabilities along with first- and last-mile linkages. However, we lack presence in key multi-modal segments such as rail-based container transportation, inland shipping, CFS/ICD, among others. As customers seek one-stop, mode- optimised logistics solutions, it is critical for us to offer multi-modal offerings in the future linking sea, rail, road and air. We plan to leverage our pan-India presence and surface transportation capabilities and are evaluating options to build and expand multi-modal offerings.

Last-mile delivery is expected to witness high double-digit growth on account of evolving customer needs. Quick commerce and Direct To Customer (D2C)/ Direct To Kirana (D2K) models are driving the next phase of growth in the last-mile delivery space, and has created a large market for micro fulfilment. These models are moving beyond the traditional e-commerce sector and extending to consumer products, among others. We have a sizeable presence in the e-commerce, last-mile delivery space and have launched an electric vehicle based, commercial last-mile service called eDeL. Currently, we have a fleet of 550+ EVs in over 15 cities. We plan to expand this service aggressively through a fleet of owned and contracted EV fleet and extend it to sectors beyond e-commerce.

We recently acquired stake in Whizzard, one of the fastest growing and profitable LMD companies, offering delivery, distribution and fulfilment as a service. Through this acquisition, we stand to gain significant share in the last-mile services by capitalising on growth opportunities in quick commerce and D2C/D2K. This acquisition will complement our existing last mile business and eDeL and will help accelerate addition of technology, geographical coverage and operational capabilities.

We recently acquired stake in Whizzard, one of the fastest growing and profitable LMD companies in India, to expand technology-based offerings in the last mile space, including micro fulfilment.

2. Focus on providing differentiated and integrated solutions in the 3PL segment

Supply chain complexities increased significantly in the recent past to address changing consumer preferences and demands. With higher complexities across the supply chains, our customers want solutions that optimise their end-to-end needs from sourcing, inbound transportation, storage, outbound transportation, distribution, fulfilment, right up to returns processing and reverse logistics. Our extensive experience across e-commerce, consumer, pharmaceuticals, auto and engineering sectors enabled us to develop the key building blocks to provide integrated solutions to our customers. We developed sector-specific solutions, revamped our sales and solution designing organisation aligned to our key end markets, and enhanced our sales processes and technical capabilities to offer such solutions to our customers.

3. Drive operational excellence by focusing on solution value models, standardisation, improving quality and safety, enhancing transportation capabilities, and expanding our network of warehouses

We are continuously working towards establishing best-in-class processes and systems across the organisation. Our Centre of Excellence team works towards standardisation of operations across sites, developing functional competencies, and exploring avenues for automation and innovation at our sites. We continue to develop and adopt consistent and common operating systems focused on safety, workforce management, productivity, and process excellence. We are also focused on enhancing and integrating our solution design capabilities to deliver a consistent experience to our customers from design to delivery.

The transportation service line contributes significantly to our operations. We source our fleet from a large network of business associates spanning the country. We have built robust processes for partner selection, onboarding and development and have several programmes in place aimed at improving partner loyalty, service quality and performance. We continue such investments in our partners to build long-term, mutually beneficial partnerships.

Following GST, consolidation of supply chains is a consistent trend in our industry, and we continue to take advantage of this opportunity. We contracted large, multi-user warehouses in certain strategic locations across India. These multi-user smart warehouses are built to suit the highly flexible needs of e-commerce and consumer companies. We plan to keep expanding our network of built-to-suit warehouses over the next few years, achieving 12-15 million square feet capacity of built-to-suit (BTS) warehouses by FY26. As on 31st March, 2022 our BTS capacity reached ~3 million square feet, and we are well on track to realising our FY26 aspirations. We also brought a large portion of our fleet on to an integrated track and trace platform to improve visibility of shipments and extend transparency to our customers.

We plan to achieve 12+ million square feet capacity of built-to-suit warehouses by FY26, catering to the highly flexible needs of e-commerce and consumer companies in particular.

4. Digitisation and innovation

Over the past several years, we made consistent investments in digitisation and technology to augment and optimise our operations to serve our customers better. Through digitisation and network management, we also optimise the utilisation of our assets across customers, sectors and routes. We are steadily digitising our existing processes to improve transparency, data availability, and efficiency. Planned investments in technology systems include enhancements to our transport management system, development of our warehouse management system, EMS technology platform, and a portal for our business associates. Besides the above, we are working on scaling up our analytics and network optimisation capabilities.

We implemented an advanced human resources management system and a new track and trace system for our freight forwarding operations this year. To capitalise on emerging technological trends, we launched pilots to incorporate technologies like drones, AGVs, IoT and Analytics in our business.

Catapult, an incubator programme hosted by us, is in its second year in FY22 and this edition of Catapult aims to identify new and innovative solutions to accelerate technology interventions in the supply chain and mobility industry.

E.2 EMS business strategy

In FY22, our EMS Business witnessed a slow recovery in the backdrop of an extremely challenging external environment owing to the pandemic. In the past two years, we made aggressive efforts to add customers from manufacturing and e-commerce sectors to offset the decline in the IT/ITeS sector. Our long-term strategy for the mobility business, however, remains unchanged and our growth plans are driven by the following key strategies:

1. Develop B2B2C solutions, and diversify in manufacturing and e-commerce

Historically, corporates used to book, roster and schedule office commute or car rental services for their employees. This trend has been changing over the past few years, and more and more companies are offering the flexibility to their employees to selfbook, roster and schedule a ride between workplace and home. This is essentially changing the nature of our operations from B2B to B2B2C, which demands better service levels, greater flexibility, and higher levels of data and analytics to run successful operations. We are developing and piloting models to offer B2B2C services under different commercial constructs to our clients.

IT/ITES, banking and consulting industries have historically been the largest end-markets that we catered to. With Covid imposed restrictions on mobility, and companies adopting work from home or hybrid working models, demand for mobility from these sectors shrunk. We are actively working to provide existing and new services (e.g. bus services) to sectors like manufacturing, telecom, and ecommerce to de-risk the business.

2. Expand offerings: On-call, airport, outstation and micro-mobility segments. Build EV portfolio

With ETMS at the core of our business, we plan to expand into on-call, airport transfers and outstation service lines. The on-call business is a large segment, which requires dedicated assets and services setup. Further penetration into this segment allows for customer account synergies and better asset utilisation. With resumption of domestic and international air travel, demand for airport cab services is picking up. This market segment has high service level requirements and high entry barriers and is suited to our objective of becoming an end-to-end mobility service provider. With rapid development of instant public transport systems in most major metros and tier-1 cities, there is increased demand for mobility services between metro/rail/bus stations and home/office locations. These are typically short distance trips in set routes, and hence EVs are suited for such operations. We are, therefore, evaluating and developing solutions for micro-mobility.

We plan on becoming a leading mobility provider to offer flexi fleet of ICE (Internal Combustion Engine) and EVs. Our long-term goal is to have 30% of our total fleet as EVs. We are also working to establish an EV ecosystem by means of partnerships to create EV supply, financing, vehicle maintenance, off-road support and charging infrastructure. Our acquisition of Meru Cabs is a step in the direction of expanding our offerings and building EV based solutions.

3. Develop an integrated technology platform to support asset optimisation and multi-service line offerings

We are developing Alyte as an end-to-end digital platform that manages the entire supply and demand lifecycle of multi-service line operations and utilises analytics for centralised orchestration and optimal asset utilisation. It will also support modules for contracting, invoicing, and providing network visibility and optimisation. This platform is envisaged to be hosted on cloud to ensure compliance and superior customer experience through transparency and optimised service levels.

4. Develop new vehicle supply models. Enhance safety and service standards

Our current operating model relies on large-fleet owners and aggregators. This type of sourcing typically results in relatively lower margins, and exposes us to the risk of disintermediation. To address this, we are actively trying to create a balanced sourcing mix by adding more small owners and Driver Cum Owners (DCOs).

We are also working towards a network model across our service lines (ETMS, On-call, B2B2C) for cross-utilisation of assets through digital intervention. Our technology platform and analytics will help us in route optimisation and network solution designing to drive higher vehicle utilisation.

We will focus on enhancing service standards through programmes aimed at improving reliability and safety. We understand that customers place their trust in us when they get into our vehicles. Commitment to passenger safety is our topmost priority. To ensure the highest safety standards, we incorporated features ranging from digital to physical add-ons, which encompass live tracking to a driver background check.

F. RISKS AND CONCERNS

We are committed to recognising and managing the risks our business is exposed to (internal and external) and have put in place mechanisms to handle the same proactively and efficiently. We recognise that these risks could adversely affect our ability to create value for all stakeholders and have taken steps to mitigate the same.

The major risks to which our is exposed are:

1. We depend significantly on clients in the automotive industry and their performance. The automotive numbers include the farm segment, whose performance has improved over the years. The concentrated dependence on the automotive industry hence reduced. We took steps to diversify into other industry segments, mainly focusing on consumption led businesses and over time, have reduced its dependence on the automotive industry.

2. We depend on a limited number of clients, including parent and promoter, Mahindra & Mahindra Limited and other Mahindra Group entities. This exposes us to a high risk of client concentration. We continue to take steps to create a larger base of customers. In addition, we are leveraging technology and innovation to achieve cost efficiencies for customers, which results in long-term relationships with them.

3. We operate in a highly competitive industry dominated by many unorganised players. Many segments within the logistics industry are highly commoditised and have low barriers to entry or exit, leading to a market with a very high degree of fragmentation. Increased competition from other organised and unorganised third-party logistics or people transport providers may lead to a reduction in revenues, profit margin and a loss of market share. To mitigate this, we create value through integrated technology-based solutions, transport network-based solutions, and skill development of employees.

4. We have an asset-light business model pursuant to which we outsource a large part of our operations to independent contractors for specific services, resulting in the engagement of a large pool of contract labour. As a result, our compliance obligations with diverse and complex laws and regulations are significant. Failure to comply with the same exposes us to various implications - financial and otherwise. Also, some of these laws are subject to different interpretations, which makes compliance difficult. We are committed to complying with all statutory obligations as applicable to it from time to time.

5. The assets necessary for our operations such as vehicles, warehouses and workforce are owned or arranged by our business associates. We depend on them for adequate and timely supply of such assets for our operations. Any shortage of such assets may result in additional costs. As a mitigation plan, we continue to develop multiple business associates for every region, including developing different commercial models to attract business associates.

6. We deploy many workers at our in-factory stores as well as linefeed and warehouse operations. These operations may get impacted by labour unionisation, unrest and strikes. If labour issues are not resolved in a timely manner, they could limit our ability to serve our clients, and may impact our business.

7. We serve the supply chain logistics and people transport requirements of our clients in India. The demand for our services is highly dependent on the general level of economic activity and economic conditions in India. Our business and operations may be affected by fluctuations in performance of the Indian economy and general economic activity in India.

8. With more inorganic acquisitions, we face the risk of integration effectiveness. Slow ramp up of anticipated volumes and delayed synergy on technologies impacts the cash flow and revenue. To mitigate this, we continue to optimise the operating costs and overheads across all businesses and integrate technology architecture investments.

G. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The management of the Company is committed to ensuring effective internal control systems commensurate with the size and the complexity of the business. We established adequate and effective internal controls to achieve its compliance and reporting objectives. The controls are deployed through various policies and procedures. These policies and procedures are periodically revisited to ensure that they remain updated with the changes in the business environment. Polices and processes are regularly tested by internal and statutory auditors. Suggestions to further strengthen polices and processes and make them more effective are shared with respective process owners, following which requisite changes are made.

We invest in various IT initiatives to automate controls to the extent possible to minimise errors and lapses. The Audit Committee reviews the adequacy and effectiveness of our internal control environment and monitors the implementation of audit recommendations.

H. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements were prepared in compliance with the requirements of the Companies Act, 2013. We adopted the Indian Accounting Standard (IND AS) from 1st April, 2016.

The consolidated financial statements were prepared in compliance with applicable IND AS 110 and are presented in a separate section.

Standalone Financial information

1. Share Capital

The authorised share capital of the Company is Rs.105 crores divided into 10,50,00,000 equity shares of Rs.10 each. Our paid-up capital as at the end of the year was at Rs.71.87 crores compared to Rs.71.67 crores as at the end of the previous year. The increase is due to the issue of 2,01,278 equity shares on account of exercise of options granted under our Key Executive Stock Option Scheme, 2012 and our Employee Restricted Stock Unit Plan 2018 during the year.

2. Retained Earnings

The retained earnings i.e., surplus in the statement of profit and loss as on 31st March, 2022 was at Rs.372.62 crores compared to Rs.366.89 crores as at 31st March, 2021.

3. Borrowings

We continue to remain debt free as on 31st March, 2022.

4. Property, plant and equipment and other intangible assets (including CWIP and intangible assets under development)

The property, plant and equipment and other intangible assets, including CWIP and intangible assets under development amounted to Rs.487.54 crores as on 31st March, 2022 compared to Rs.348.85 crores as on 31st March, 2021. We follow the asset- light model to execute our operations, and the capital expenditure of 96.45 crores incurred during the year was mainly on account of the purchase of material handling equipment for warehousing services, eDeL vehicles and other IT equipment and software. The addition due to Right of Use Assets from AS 116 is 185.37 crores.

5. Trade receivables

Trade receivables as on 31st March, 2022 were at Rs.405.67 crores, which amounted to 11.17% of our revenue from operations compared to Rs.408.25 crores as on 31st March, 2021, which amounted to 13.80% of the revenue from operations. Continued focus on collection throughout the year helped us reduce the receivables at the end of the year.

6. Results of operations Revenue from operations

We are engaged in providing integrated logistics services in two distinct segments i.e., Supply Chain Management (SCM) and Enterprise Mobility Services (EMS). Revenue from operations increased to Rs.3,631.08 crores in the year ended 31st March, 2022 from Rs.2,959.11 crores in the year ended 31st March, 2021, with a 22.71% increase. The revenue from the SCM segment increased by 22.77% whereas the EMS segment increased by 21.22%.

Other Income

Other income mainly comprises interest income from fixed deposits, dividend from units of mutual funds, gain on sale of units of mutual funds, sundry balances/provisions written back, and interest on income tax refund. The decrease in other income from Rs.15.50 crores in the year ended 31st March, 2021 to Rs.9.56 crores in the year ended 31st March, 2022 was primarily due to interest on income tax refunds.

Total Expenses

Employee benefit expenses include salaries and wages, including bonus, contribution to provident and other funds, gratuity, staff welfare and so on. Employee benefit expense as a percentage of revenue from operations decreased from 9.48% to 7.77% in the previous year. The increase in absolute value is mainly due to an increase in headcount and annual increments.

The increase in depreciation and amortisation expenses is due to the impact of capitalisation of assets done in the previous year and in the current year and also owing to lease cost now being partly reflected as amortisation costs post adoption of Ind AS 116.

Operating expenses was at 84.98% of revenue from operations in the current year as compared to 84.30% in the previous year mainly including freight and related expenses, labour and related expenses, warehouse, and related expenses, rent, among others. Operating expenses increased marginally in view of acquisition of new customers.

Profit before tax for the year ended 31st March, 2022 was at Rs.32.69 crores compared to Rs.32.64 crores in the year ended 31st March, 2021, registering a 0.15% increase. Similarly, profit after tax is at Rs.24.44 crores in the year ended 31st March, 2022 compared to Rs.23.99 crores in the year ended 31st March, 2021, registering an increase of 1.88% over the previous year. We recorded losses specifically in first quarter of the financial year due to impact of Covid-19 outbreak, resulting in pressure on overall PAT for the year.

Consolidated financial information

The consolidated financials include our and two of our subsidiaries i.e., Lords Freight (India) Private Limited and 2x2 Logistics Private Limited financials. Consolidation of our and MLLs two subsidiaries financial statements is done on a line-by-line basis by adding together items like assets, liabilities, income, expenses after eliminating intercompany transactions in accordance with IND AS 110 on consolidated financial statements. The consolidated financial statements are presented in a separate section.

The consolidated revenue from operations was Rs.4,083.03 crores in the year ended 31st March, 2022 as against Rs.3,263.72 crores in the year ended 31st March, 2021, registering a growth of 25.10%. Consolidated profit after tax was at Rs.34.57 crores compared to Rs.29.18 crores registering a growth of 18.47%. Profit after tax for the year attributable to non-controlling interest is at Rs.(2.49) crores as against Rs.(1.21) crores in the previous year. Our operations and those of our subsidiaries were suspended during countrywide and subsequent regional lockdowns. Even after lockdowns were lifted, volumes from several end markets continued to remain under stress. This resulted in overall revenue and PAT pressure.

Key ratios

Key matrix FY22 FY21 Change y-o-y
Debtors Turnover # 8.46 6.39 32.39%
Inventory Turnover NIL NIL NIL
Interest Coverage Ratio * 20.75 14.70 41.16%
Current Ratio 1.00 1.07 -6.54%
Debt Equity Ratio ** 0.06 0.05 20.00%
Operating Profit Margin % 5.14% 4.56% 12.72%
Net Profit Margin % 0.85% 0.88% -3.41%
Return on Net worth 5.95% 5.14% 15.76%
Return on Capital Employed 12.27% 10.46% 17.30%

# Debtors turnover ratio improved due to better credit management in the organisation

* Interest Coverage Ratio (Excluding interest under IND AS 116) improved mainly due to lower interest payment on reducing EMI on vehicles loans and lower utilisation of cash credit facility.

** Debt equity ratio increased slightly due to increase in business volumes compared to previous year.

I. HUMAN RESOURCES DEVELOPMENT

As a leading 3PL solutions provider, MLL is a people- driven organisation. Our employer-employee relationships are characterised as fair, just, trusting, and caring. This has been assimilated into the employee lifecycle through continual reinforcement via communication platforms and celebration of success stories. The HR function drives process excellence by digitising work processes in tandem with policy changes so that technology-driven engagement, efficiency, simplicity, scalability and empowerment are evident.

We were certified as a Great Place to Work, whereby it was evaluated on the Trust Index and the Culture Audit to understand the relationship an employee shares with the organisation, own job, and colleagues at work. Culture Audit helped us understand the variety and quality of people practices in the organisation. The Trust Index helped us understand the impact of these practices on employee experience through the five dimensions of credibility, respect, pride, camaraderie, and fairness. The survey showed that the organisation has robust processes for overall employee development, collaboration, inclusion, and providing support across the lifecycle. While employee perception is positive, we commenced action planning to design and institutionalise robust practices that can help sustain positive perception among employees.

Certified as a Great Place to Work

The organisation also launched a new Code of Conduct, developed by a cross-functional team that evaluated several best practices in the industry. The team introspected the core values that the organisation stands for, which employees should also demonstrate in their behaviour. The Code of Conduct was articulated to be simple, inspirational, unique to the organisation, reflective of its reality, and aligned to our vision. It was launched in a Town Hall where employees were apprised of its importance, followed by a training programme for the leadership team so that there is higher alignment and ownership.

The HR function focused on digitisation. Nectar, the HRMS platform across all HR processes for white- collared employees, were implemented successfully. It has empowered the employees with easy data navigation, efficient workflows, and a lower turnaround time for processing employee lifecycle transactions. We also conducted a trial implementation of an HRMS platform at select locations to enable face recognition and attendance capturing of blue-collar staff. Based on the findings from this trial implementation, an organisationwide rollout will take place. It will drive higher levels of automation and process efficiency. Our intranet portal Hive is a robust platform for employees to connect and engage with each other. It provides a single-window communication on organisational events and ensures that employees are updated on latest developments. To drive communication and engagement among employees, we initiated monthly podcasts.

Managing workforce challenges during the pandemic

The organisation prepared itself adequately to manage the challenges posed by Covid-19 through empowered workgroups. Incidence Management teams monitored and drove initiatives to mitigate associated risks by taking decisive action at impacted locations. We introduced various policies on Covid-19 leave, health insurance at the site level, additional home care facilities, and vaccination for eligible employees. The collective proactivity of the IMTs ensured that operations were timely restored, and employees were provided with a safe work environment.

Creating an immersive work culture

There are four dimensions to creating a highly engaging culture at Mahindra: leadership development, performance management, talent management, and employee engagement. A robust talent management framework was created to support business imperatives. The framework ensures accurate talent identification, necessary role deployment, accurate performance evaluation, and focused leadership development in line with our vision. Talent assessment and the identification of functional competencies ensure that talents are developed for future roles through functional and leadership capability building. The HR function also identified, mapped and evaluated functional competencies, which were vetted by an external agency so that there is a global outlook on the process. Proficiency levels were calibrated and initiatives on capability building and talent acquisition became competency based. We also extended development centres for employees at the Manager or more junior level. This will help with accurate mapping of talent in the organisation and create a succession-ready pipeline.

Bettering growth and development processes

We revamped our performance management process as well as career growth and compensation practices. These processes underwent a detailed review, and the revised policy was implemented after considerable dialogue with the leadership team. Grades and designations were also restructured with the addition of new grades based on benchmarking with industry practices. The calibration process was decentralised with higher levels of ownership with calibrators assigned by the leadership team to evaluate performance. An Appraisal Grievance Redressal mechanism was launched to address employee grievances in a timebound and effective manner that provides employees with a forum to have their concerns addressed. Sufficient time and effort were invested in revising the appraisal process, the norms on conversations, sensitisation of stakeholders about their rights and responsibilities, and ensuring that there is higher level of accountability. The Talent Development Framework focused on developing robustness through the insights from development centres, conducted for critical talent and segmented into the 9-box grid. Career conversations occur as per aspirations and succession readiness is aligned to business priorities where the right talent is mapped and developed for the right role.

Innovative skill building and development opportunities

The organisation also has iCoach, which has been created as a platform to develop internal coaches and create a robust coaching culture. Designed as a leadership development initiative, iCoach has successfully enabled internally certified coaches to coach employees with skills and insights. This has equipped them with capabilities to effectively coach others. Over 30 coachees underwent virtual coaching sessions at regular frequency. There was a diversity and inclusion focus in this endeavour wherein women associates were considered as Coachees. We further plan to strengthen the coaching culture by certifying our leaders who complete the course as International Coaching Federation accredited coaches.

To accelerate learning, a learning management system was launched this year that offers over 7,000+ courses on leadership, behavioural and technical topics. In this, 1,400+ employees have leveraged the unified LMS for self-paced learning, accessing over 170+ courses. The organisation launched virtual Disha, a programme for first-time supervisors on the shop floor, to strengthen their ability to manage teams and ensure result orientation with execution excellence aligned to the Mahindra Leadership Rise competencies. Via this initiative, 1,500+ employees were covered by leveraging in-house leaders and faculty. During the lockdown, the organisation focused on virtual learning, and a total of 1,25,000+ person-days of virtual learning were conducted.

The AXLERATE platform was created in 2018 to drive functional capability building across various domains in supply chain and operations management. The focus was to develop an outside-in perspective about best practices from the industry. We collaborated with NITIE for functional capability building. The AXLERATE 2.0 certificate programme module was rolled out basis inputs received from business leaders across the organisation. NITIE conducted site visits at several customer locations and interacted with employees to understand their expectations from the module. The modules cover industry best practices as well as working knowledge in areas like supply chain, logistics, warehousing, stores linefeed, transportation, and inbound/outbound operation. This will be delivered via case studies, quizzes, and activity-based learning, designed to cover 1,200+ employees.

To enhance the problem-solving capability of senior leaders in the organisation, Prapantaran, the Six Sigma Black Belt certification programme, was launched this year for 15 leaders. They identified projects linked to optimisation, cost reduction, productivity enhancement, among others, specific to their role in the organisation. The Six Sigma Black Belt programme uses advanced problem-solving approaches and statistical tools that enable employees to solve complex business challenges and achieve significant business impact. The programme was designed for participants to identify opportunities based on challenges in their function, involve key stakeholders that they partner with, improve competence in problem-solving via statistical tools, and implement projects to achieve business results.

Supporting employees across locations

We understand that employees working across different locations face distinct challenges. Hence, we created various forums where employees can ask questions and share feedback. As part of our employee relations Sanjeevani framework, the Location HR team has regular HR Connect sessions with permanent, FTC and third-party employees to understand their concerns and resolve their queries.

Employees get to ask questions and raise concerns during one-on-one or group interactions with the Location HR. Their queries are tracked along with the time for resolution. The HR Connect sessions are ideal for employees to share their feedback or challenges directly with the Location HR while also getting clarity on various policies and processes. Our Leadership Team (CLT) conducts quarterly town halls where leaders share various organisational updates such as quarterly performance, key achievements, and the way forward. The town halls are conducted virtually with employees logging in across locations and a key part of it is where employees get to ask questions directly to the leadership team. The questions posed by employees are recorded and each one of them is responded to during the town hall.

We revamped our reward and recognition platform, benchmarked with best practices in the industry and our offerings were revised accordingly. It will now be digitised through Nectar, the HRMS platform, and will include features like spot recognition, an online redemption option, notifications to various stakeholders in the team as well as appreciation boards, which will enhance the employee experience.

Fostering diversity and inclusion

We encourage and value diversity among our employees, vendors, business partners, contractors, customers, and communities. This allows us to increase our exposure to varied thought processes and knowledge streams and broaden our outlook on the business. This helped us create an environment of inclusion and participation where qualities of equality, fairness, and dignity are always fostered. We made good progress in implementing our five-year Diversity and Inclusion (D&I) roadmap. The second career programme for women Udaan provided 12 women who had gone on a career break, with an internship opportunity to facilitate their smooth transition back to the industry. Based on current openings and suitability for open positions, many of them are provided with full-time employment upon the completion of their internship.

Over 90% of the organisation has completed an e-learning programme on the Prevention of Sexual Harassment (POSH) Act, and employees have completed an e-learning module on Diversity & Inclusion. Additionally, manager sensitisation programmes on unconscious bias and gender stereotypes were launched in an instructor-led training format. We invited subject matter experts in the D&I space as well as women leaders who have achieved corporate success, to share their insights and experiences with the leadership team.

We also made progress on the other spectrums - by hiring and inclusion of People with Disabilities, talent from the LGBTQ community, and Armed Forces veterans. The Veteran Employment Engagement and Retention Program or V.E.E.R to train and deploy retired Armed Forces Veterans in operations saw the third batch getting inducted successfully. The LGBTQ inclusion policy was launched in the previous year to cover employees from the LGBTQ community under medical insurance, adoption leave, and compassionate leave policies. We ensured that their experience throughout the lifecycle is memorable and productive. The POSH policy was revised to be a gender-neutral policy, to signify the inclusion of all.

We signed up with the United Nations Womens Empowerment Principles (WEP). This was a bold step taken in the direction of advancing gender diversity in our workplace, marketplace, and communities by focusing our efforts on developing and implementing action plans for gender equality strategy. By aligning with the 7 WEP principles, our priorities focus on hiring, empowering and retaining women and people from across diversity spectrums.

Being a compliant and equitable employer

Statutory compliance with all applicable labour laws is a critical aspect of our corporate governance approach. In that regard, regular audits are conducted with the help of a third-party agency, not only for our locations but also in the case of business partners providing third-party workforce, to ascertain levels of compliance. Training is imparted on statutory compliance to the members of the HR team and the business partners to enhance their competency levels. We leveraged eligible candidates under the National Employability Enhancement Mission (NEEM) and the National Apprenticeship Promotion Scheme wherein they are seamlessly inducted, and their capabilities are built through focused onboarding. We adhere to all labour-related legislation and offer equal and ample opportunities to all our employees. Discrimination or biases, in any form, are unacceptable and we ensure and facilitate safe and healthy working conditions for our workforce. As far as workers rights to exercise freedom of association or collective bargaining are concerned, we have unions representing our on-roll employees as well as third-party employees at some locations. We ensure that the right to freedom of association and collective bargaining is exercised by having bilateral discussions. The same is recorded and honoured under longterm settlements.

Keeping a close eye on engagement efficiency

To assess the engagement levels of such a large workforce, we administer the Mahindra CARES (MCARES) engagement survey for its on-roll employees. Based on the philosophy that your culture will determine your success, the Mahindra Group created an ecosystem of engagement that is anchored by its core purpose: We will challenge conventional thinking and innovatively use all our resources to drive positive change in the lives of our stakeholders and communities across the world, to enable them to Rise. The MCARES results are shared with Managers and their teams to initiate action planning.

Brainstorming sessions are conducted with the team of respective managers in the absence of the manager to ensure open dialogue and debate within the team. Specific action plans are made with set accountabilities and timelines for completion.

Action planning is done at 3 levels:

Vertical/Function level, Cluster/Department level and Location/Plant level. Action plans are reviewed by HR/Business Heads periodically (monthly) region-wise. Trackers and status reports of completion percentage are published across the company by the CoE team and shared with Managers as well as their teams. Employees thus are updated on actions taken as per commitments made by the team and their respective managers. At the end of the financial year, a final status report is shared comprising the actions completed. In addition to existing platforms under the purview of MCARES action planning, the analysis of verbatims, and the involvement of key stakeholders in the process, specific opportunities are identified for departments where the score was lower than the average score. The execution of key initiatives to address gaps takes place based on PDCAs, appreciative enquiries, and diagnostic surveys.

We revamped the performance management policy and launched a revised one based on feedback received from employees and key stakeholders. A focused calibration process was launched, with the involvement of the leadership team, which includes appraisal grievance redressal mechanism, appraiser and appraisee training sessions, and several other initiatives to strengthen the appraisal experience. We launched an e-learning module on performance feedback to drive sensitisation on how to effectively conduct appraisal discussions.

Projects linked to capability building, hygiene action planning, communication, organisational development for functions or business units with low scores, leadership development, and talent management were conducted with a closure of the communication loop taking place through the You Said - We Did campaign that reassures employees that their opinions matter and they are an integral part of the change journey. Another important development in enhancing employee satisfaction is the review and revision of key policies like performance management, transfer and relocation, internal job posting and re-hiring.

Prioritising the health and wellness of our people

Employee health and wellness are of primary importance, and we work to optimally manage their welfare. The Swayam initiative, which was launched in the previous years to drive health and wellness across levers of financial wellness, physical fitness, personal counselling, nutrition counselling, sports, and yoga had a positive impact on employees work-life balance and engagement levels.

Engagement programmes like the #Swayam Fitness Challenge, Swayam Fitness and Health nuggets, Swayam Yoga as well as tax planning sessions were conducted. We partnered with an external agency to provide counselling services to employees by trained counsellors, who remained confidential. The engagement scores received from these surveys have seen consistent improvement in the last few years, and we are focused on sustaining the momentum.

During the pandemic, to support employees in managing their mental health and dealing better with anxiety, we launched Counsellor Speak Series, Nutritionist Speak Series, and Financial Expert Speak Series covering 1,300+ employees. We also arranged for free one-to- one nutrition counselling, financial counselling sessions to support employees in managing their health and finances better. We empanelled an external vendor that provides online fitness counselling services, fitness challenges, workout regimens, among others, designed to drive engagement as well as enhance fitness levels.

J. CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis and in the Annual Report describing our objectives, projections, estimates, expectations, plans or predictions and industry conditions or events are forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results, performance or achievements could differ materially from those expressed or implied. Several factors could make a significant difference to our operations. These include economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on over which we do not exercise any direct control.