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Mahindra Logistics’ (MLL) Q4FY23 EBITDA of Rs637mn (up 16% YoY) was in line with our estimates; however, it missed street estimates by 7%. Key takeaways include: 1) Mixed quarter for 3PL division as automotive and manufacturing sectors contributed to growth while consumer and e-commerce lagged; 2) freight forwarding segment faced price headwinds; 3) Rivigo operations accounted revenue of Rs770mn and loss at EBITDA level narrowed down to Rs190mn; and 4)
annual contract worth Rs1bn in non-Mahindra SCM business was booked in Q4FY23.

Going ahead, management has guided express business is likely to become positive at EBITDA level by Q3FY24 and PAT level by end-FY24 with PAT margin of 3-4% in steady state. At CMP, we believe the stock adequately captures the
adverse revenue impact from one of the contracts not yielding the desired benefits and risks pertaining to the Rivigo integration. Going ahead, we believe margins have turned the corner and are likely to improve on the back of improvement in Rivigo’s profitability. We introduce FY25E estimates at this stage and value MLL stock at 30x FY25E EPS (earlier: 34x on FY24E EPS) due to the likely EPS CAGR of 78% through to FY25E. Our revised TP works out to Rs390 (earlier Rs475). We upgrade MLL stock to ADD (earlier Hold).

* In-line EBITDA, but visible margin improvement. MLL’s Q4FY23 EBITDA of Rs637mn (up 16% YoY) was in line with our estimates, though undershot street estimates by 7%. Key points: 1) EBITDA (ex-Rivigo) was up QoQ with gross margin
up 34bps QoQ (in line with management’s guidance of 25-50bps improvement QoQ); 2) SCM revenue grew 15% YoY (down 5% QoQ) as relatively better performance of automotive and manufacturing sectors was offset by subdued e-
commerce and consumption sectors and constraints on road movement owing to adverse weather conditions, especially in the North; 3) freight forwarding business continued to face significant price headwinds; 4) executed Rs1bn worth of annual contract in non-Mahindra SCM business; and 5) Q4FY23 depreciation and interest cost correspond to steady state, reflecting Rivigo and Whizzard execution, however, earnings benefits are likely to follow. Going ahead, we believe margin has bottomed out and may improve as high-margin express business ramps up.

* Keeping a close tab on express business ramp up: In the earnings concall, management indicated its focus on Express business turning EBITDA positive by Q3FY24 and PAT positive by end-FY24 with an ultimate aspiration of achieving PAT
margin of 3-4%. We will keep a close tab on the ramp of express business for earnings turnaround. On an annualised basis, Rivigo business is already operating at 8% of consolidated revenue, hence, an incremental contribution is likely to have a
significant positive impact on earnings.

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