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Timely turnaround of Rivigo business critical for profitable growth

* Mahindra Logistics Ltd. (MLL) reported a revenue growth of 17% YoY to INR12.7b in 4QFY23 (8% below estimates). EBITDA increased ~24% YoY to INR637m (v/s our estimate of INR 663m). EBITDA margin came in at 5.0% (v/s our estimate of 4.8%) in 4QFY23 (up 30bp YoY and QoQ). Higher M&M volumes, easing inflation, and crude prices helped MLL offset the sluggish demand in the e-commerce segment.

* MLL reported a loss of INR8.2m in 4QFY23 v/s APAT of INR74m in 4QFY22 (our estimate of APAT stood at INR53m). Higher depreciation and interest costs related to recent acquisitions drag the overall performance.

* For FY23, MLL reported a revenue of INR 51.3b (up 24% YoY), EBITDA margin 5.1% (up 60bps YoY) and APAT of INR 263m (up 50% YoY).

* Supply Chain management recorded revenues of INR 12b (up 15% YoY) and EBIT loss of INR37m. Diversified revenue portfolio across segments offset the muted growth in the Ecommerce segment for the quarter. Enterprise Mobility Services (EMS) reported revenues of INR 755m (up 6% YoY) and an EBIT loss of INR 9m. The airport-based services within the mobility business are experiencing a significant increase, fueled by a surge in travel.

* MLL Express Services Pvt Ltd (MESPL) reported a revenue of INR770m for the quarter and incurred a loss of INR217m. Excluding the impact of Rivigo acquisition, PAT for the quarter stood at INR210m, a significant increase from INR60m in the same quarter last year. The integration of Rivigo business with MLL operations is underway and MLL expects it to breakeven at EBITDA level by 3QFY24.

* We expect MLL to clock a revenue/EBITDA CAGR of 21%/29% over FY23–25E. We believe the losses incurred by the Rivigo business would decrease in the near future as the integration of Rivigo with MLL operations gathers momentum and the business achieves greater scale. We lower our FY25 PAT estimates by 18% to factor in higher-than-expected depreciation costs related to recent acquisitions. We reiterate our Neutral rating, with a revised TP of INR350 (20x FY25E EPS).

Losses incurred by Rivigo adversely impacts consolidated performance; MLL expects break even in the next few quarters

* Management expects B2B express business (Rivigo) to achieve EBITDA breakeven by 3QFY24 and PAT breakeven by 4QFY24.

* During the quarter, MLL Express Services Pvt Ltd (MESPL) completed the acquisition of Rivigo’s B2B express business along with associated brand and technology platforms.

* The acquisition expands MLL’s presence to over 19,000 pin-codes across India. The integration is underway and MLL expects to start realizing costreduction benefits from 1QFY24.

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