Mahindra Logistics IPO Recommendations: Analysts see upside in logistics, lean operations


Mahindra & Mahindra (M&M) group company Mahindra Logistics Limited (MLL) opens its maiden offer tomorrow. MLL IPO, priced in the range of INR425 – 429 per share, will offer partial exit to private equity firm Kedaara Capital and its fully-owned subsidiary Normandy. The automotive group’s logistics arm is looking at a valuation of INR3,000 crore. Thanks to the Uber-like asset-light model and the resulting high scalability, analysts are positive in Mahindra Logistics IPO recommendations and reviews. Here is a look at Mahindra Logistics IPO recommendations from major brokerage houses and analysts.

Choice Broking has a positive view on the logistics firm’s IPO. “On valuation front, MLL is demanding a P/E valuation of 66.9x to its FY17 EPS of Rs. 6.4. However, considering the adjuste PAT, the P/E comes out to be 50.8x (to its FY17 adjusted EPS of Rs. 8.4), which is in-line with the peer average of 46.2x. Moreover, due to its asset light business model, the FY17 asset turnover is at 46.1x, which is far better as compared to peer average of 3.3x. Thus considering the above observations, we assign a “SUBSCRIBE” rating for the issue,” said its research report.

Read Also: Mahindra Logistics IPO Review: Asset-light logistics

Angel Broking also feels that the asset-light model of operations has led to better return profile. “At the upper end of the price band (`425-`429), the issue is priced at 66.2x and 50.8x of its reported and adj. FY2017 earnings. Due to its asset light model, there is no exact comparable peer; however, the thumb rule for any investment is growth and returns. MLL has exhibited CAGR of 15% and 25% in top-line and adj. bottom-line respectively, which is better than its players i.e. VRL logistics and Transport Corporation of India. In terms of returns, company has shown a better return profile (ROE & ROIC of 17.3% and 40% v/s. peer group avg. – 13% & 14% respectively). Based on its growth story, diversification strategy, strong parent repute and post GST attractiveness of the logistics sector, we assign Subscribe rating to the issue,” said the brokerage house in its IPO note.

Putting faith in Mahindra Logistics’ integrated and end-to-end logistics services and solutions, AUM Capital has assigned a Subscribe rating to the offer. “The Indian logistics industry is expected to grow and Mahindra Logistics Ltd, an arm of automobile giant Mahindra and Mahindra Ltd will be benefitted from these rising opportunities. MLL’s focus on enhancements in technology, leveraging on the changing logistics industry dynamics particularly with the implementation of GST regime and exploration in new business opportunities in new industry verticals shows bright prospects in the future. Hence, we recommend to SUBSCRIBE the issue for medium to long term perspective,” said its analysts in the research note on MLL IPO note.

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GEPL Capital is also among the brokers maintaining positive Mahindra Logistics IPO recommendations. “Mahindra Logistics stands to gain from operating leverage. At a P/E of 64xs of FY17 Earning, we believe that Mahindra Logistics has a unique business model and strong growth metrics which will make them lucrative. We assign a Subscribe rating to the IPO,” opined the firm’s note on the upcoming IPO.

Another positive word has come from Ajcon Global which finds MLL best positioned to tap vast opportunities in the 3PL (third party logistics) business. “At the upper end of the price band of Rs. 429, the IPO is valued at 66x on FY17 EPS and 50x on annualized Q1FY18 EPS which we believe is at a premium due to its asset light business model and high growth opportunity. With due consideration to factors like a)strong parentage, b) vast opportunities presented in third party logistics industry, c) total logistics market expected to cross Rs. 9.2 tn with 3PL market at Rs. 570-580 bn by FY 2020 (19-20% CAGR), d) asset light business model which others players in the logistics industry do not have, e) long standing relationship with marquee clients f) impressive financial performance with topline CAGR of 22 percent+ and strong ROCE of 16.4 percent, g) logistics sector being strong beneficiary post GST implementation, we recommend “SUBSCRIBE” to the issue,” said analyst Akash Jain in his research note.

KRChoksey has voiced concerns over valuations but has nevertheless advised investors to subscribe. “In terms of valuation, on the upper price band of INR 429, the company has been valued at ~65x on FY17 earnings as against 71x for Blue Dart Express, 34.2x for Gati Ltd and 54x for TCI Express. We believe, valuations look expensive, however, the management expects MLL to receive a tax refund of approximately Rs 540 mn, which will result in positive cash flows in the coming period. These cash flows will be utilised in maintaining organic growth trajectory for the company, which could result in strong bottom line growth in the years to come. The company plans to support this growth by focusing on increasing business from Non-Mahindra Group clients, leveraging the changing industry with the implementation of GST regime with greater focus on warehousing, continuing focus on technology enhancements and diversifying into other industry verticals,” said the brokerage house further adding to the positive Mahindra Logistics recommendations.

Please note that we will further update this list so keep coming back on this page. Meanwhile, feel free to check out the MLL discussion page to get a better sense of the mood on the street.


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