Hold Mahindra Logistics Ltd For Target Rs. 410 - ICICI Direct
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Core business performance marred by acquisition…
About the stock: Mahindra Logistics is an end-to-end 3PL logistics solution provider, from performing milk run to in-factory logistics, warehousing to first mile and last mile logistics.
* Serves over 400 customers via its two-business segment: supply chain management [(SCM), 96% of revenues] and enterprise mobility
* Revenues from Mahindra comprise 54% of SCM revenues while the rest is contributed by non-Mahindra
Q4FY23 Results: Results were below I-direct estimates on all fronts.
* Revenues grew 17% YoY to | 1272 crore, led by growth in SCM segment • EBITDA grew 24% to | 64 crore with margins at 5% (vs. expected 5%)
* However, PAT arrived at a loss of | 1 crore due to higher depreciation and interest expenses (related to recent acquisition in B2B space)
What should investors do? Although MLL’s core 3PL service (82% of SCM segment) is expected to remain strong on the back of higher auto sales, growing consumption in tier II/III cities; newer businesses such as B2B Express and freight forwarding are facing respective headwinds in demand and realisation, respectively
* We await improvement in PAT margins and maintain our HOLD rating
Target Price and Valuation: We value the stock at | 410 i.e. 27x P/E on FY25E EPS.
Key triggers for future price performance: Although auto is expected to dominate the mix in the near to medium term, continued business addition in nonauto business and higher warehousing utilisation, along with cost-control measures are expected to keep MLL’s long term ambitions intact.
* The above enables it to shift buying behaviour (more online shopping), leading to higher warehousing space requirement and 3PL relevance
* Asset light business model, with projected 30%+ RoCE in FY25E
Alternate Stock Idea: Apart from MLL, we remain positive on TCI Express
* TCI Express is a leading asset light B2B (95% of revenues) express logistics company with 28 sorting centres, 800+ owned pan-India centres covering 40000 pick-up and delivery points
* We have a BUY rating on the stock & value at | 2150 (35x PE on FY25E EPS)
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