Mahindra Logistics Ltd - IPO Note

Issue Opens: October 31, 2017

Issue Closes: November 2, 2017

Face Value: Rs 10

Price Band: Rs 425-429

Issue Size: Rs 829 cr (at upper price band)

Public Issue: 1.93 cr shares (at upper price band)

Bid Lot: 34 Equity shares

Issue Type: 100% Book Building

Source: RHP

Company Background

Mahindra Logistics Limited (MLL) is one of the largest Third Party logistics (3PL) solutions providers in the Indian logistics industry. MLL has an asset light model and operates in two distinct business segments - Supply Chain Management (SCM) business accounts for ~89% of overall revenues and the company offers customized end-to-end logistics solutions and services (transportation & distribution, warehousing, in-factory logistics and value added services). It operates through a pan-India network of 24 city offices and over 350 client and operating locations. It has a large network of over 1,000 business partners that provide vehicles, warehouses and other assets and services. Corporate People Transport Solutions (PTS) business accounts for ~11% of revenue and it provides technology-enabled people transportation solutions and services to over 100 domestic and multinational companies operating in the IT, ITeS, BPO, financial services, consulting and manufacturing industries. It offers services through a fleet of vehicles provided by a network of over 500 business partners. It operates PTS business in 12 cities and has over 120 clients across India.

Objective of the Offer

The offer consists of an Offer for Sale (OFS) of up to 1.93 crore equity shares. The OFS comprises sale of up to 96.6 lakh equity shares by M&M Ltd, 92.7 lakh equity shares by Normandy and 3.9 lakh equity shares by Kedaara AIF. 1.25 lakh shares of the offering are reserved for M&M Ltd employees.

Key Investment Rationale

1. Favorable macro environment puts MLL in a sweet spot

   The implementation of GST is widely believed to be a game changer for the Indian logistics industry. This is because the focus of manufacturing companies will shift towards achieving logistic efficiencies from that of achieving tax efficiencies, which will require consolidation of numerous regional warehouse/depots to large centralized locations. Lack of domain knowledge and scale requirements are expected to give rise to outsourcing of logistics, which will enable the manufacturing companies to focus on their core competencies and rely heavily on 3PL specialist. Further, it will gain from aggressive e-commerce companies (highest growth vertical as per industry report) as they expand into newer geographies.

    

2. Asset Light model provides the edge

As per the RHP, majority of the 3PL service providers in India follow an asset-heavy model, wherein the assets involved are owned by the 3PL service provider resulting in significant capital investments. MLL has an asset-light business model which enables it to offer a variety of flexible, scalable, solutions and services based on its client’s requirements.

Key Risks

The company has been able to lower its dependence on the automotive industry by lowering down its share from ~74% in FY15 to ~63% as on 1QFY18, however, any slowdown in the economy can have a negative impact on the automotive industry which directly impacts the company’s revenues.

Conclusion

At the upper end of the price band, P/E multiple on post IPO shares works out to ~51x (FY17Adj. EPS). We recommend investors to SUBSCRIBE to the IPO from long term perspective.

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