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To acquire RSPL’s B2B Express business for INR2.25b

* MAHLOG has entered into an agreement with Rivigo Services Pvt. (RSPL) to acquire the latter’s B2B Express business. As per the terms of the agreement, MAHLOG will acquire RPSL's B2B Express business through a Business Transfer Agreement (BTA), including its customers, team, assets (including its technology platform), and the Rivigo brand.

* RSPL currently operates in the B2B Express and the Full-Truck Load segment. In B2B Express, it operates a pan India network, with a robust client base and a full-service technology setup. Its B2B Express network currently covers over 19,000 pin codes across India. It has more than 250 processing centers and branches, spanning an area of more than 1.5m sq. ft.

* As per MAHLOG, the B2B Express Logistics business is seeing strong tailwinds as customers are focusing on deepening delivery networks, enhancing digital adoption, and investing in agile supply chains. With this deal, MAHLOG expects to enhance and strengthen its offerings and customer reach.

* While the acquisition price of INR2.25b seems to be attractive (0.6x FY22 revenue), we await further clarity on the financials of RSPL’s B2B Express business. RSPL has been incurring losses over the last few years and its B2B segment (~50% of overall revenue) may also be operating at a loss or at a low margin. As we await greater clarity on RSPL’s B2B express business, we have not incorporated the acquisition in our forecasts. We expect MAHLOG to clock a revenue/EBITDA CAGR of ~18%/31% over FY22-24. We maintain our Neutral rating, with a TP of INR515.

MAHLOG sees strong opportunity in Express Logistics; acquires the B2B Express unit of RSPL

* MAHLOG has entered into a BTA with RSPL to acquire the latter’s B2B Express business, as a going concern, on a slump sale basis. In FY22, revenue from RSPL's B2B Express business stood at INR3.7b.

* With this acquisition, MAHLOG is looking to gain from: a) RSPL's network of processing centers and branches, b) its technology and process capabilities, and c) its synergies in network, team, and customer service.

* In the B2B Express business, RSPL operates as an asset-light model and provides end-to-end services across the value chain. MAHLOG is targeting to close the acquisition on or before 1st Nov’22.

Valuation and view

* The Auto sector is seeing a strong revival. The growth outlook for the Auto vertical is strong over the next few years. This is expected to drive revenue from the Transportation segment, which will support growth for MAHLOG.

* With a gradual improvement in the Transportation and Warehousing business, along with a revival in margin, we expect MAHLOG to clock a revenue/EBITDA CAGR of ~18%/31% over FY22-24. As we await clarity on its B2B express business, we have not incorporated the acquisition in our forecasts. We maintain our Neutral rating with a TP of INR515.

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