Mahindra Logistics Ltd.’s three-day initial public offering opens tomorrow as promoters and private equity investors continue to sell shares in a stock market rally.
Promoter Mahindra & Mahindra Ltd. and private equity investors Normandy and Kedaara Capital will sell 1.93 crore shares at Rs 425-429 apiece to raise close to Rs 829 crore. The two private equity firms will make close to 3.5 times gains on their investment in less than four years.
Promoters and investors have cornered the bulk of the gains in the record fundraise through IPOs so far this year.
Business
Mahindra Logistics, one of the largest third-party logistics solutions provider, works on an asset-light model as it leases vehicles and warehouses rather than owning them. It provides supply-chain management services and people transport solutions.
Through supply-chain management —its mainstay business— the company offers logistics solutions and services, including transportation, distribution, warehousing, in-factory logistics and -added services, to over 350 clients through 24 city offices.
The company gets 63 percent of its revenue from the auto sector.
Parent Mahindra and Mahindra and its associate companies contribute more than half of the revenue. The logistics firm has been slowly reducing dependence on group companies.
Mahindra Logistics also gets revenue from e-commerce industry, which grew at an 111 percent annualised rate to Rs 213 crore in three years to March.
The logistics services provider is betting on the government’s focus to boost road network and the Goods and Services Tax as it’s expected to improve supply-chain efficiency of India’s businesses. The Indian logistics industry is expected to grow at an annualised rate of 13 percent to Rs 9 lakh crore by March 2020 from Rs 6.4 lakh crore in the last financial year, it said in its red herring prospectus citing a Crisil report.
Financial Highlights
- Mahindra Logistics’ net worth stood at Rs 363 crore for the quarter ended June, translating into a book of Rs 51 a share.
- Revenue clocked a compounded annual growth rate of 15 percent and net profit rose at 17 percent in five years to March.
- Revenue and net profit for the quarter ended June stood at Rs 852 crore and Rs 15 crore, respectively.
- Earnings before interest and tax margin has been close to 2 percent as it follows an asset-light business model.
- The company has not declared any dividend in the last five financial years.
Peer Comparison
Compared to peers like Blue Dart Express Ltd., Gati Ltd. and TCI Express Ltd., Mahindra Logistics has been growing at a faster pace but lease costs have hurt margins.
The asset-light model helps it to offer a variety of flexible, scalable solutions and services based on client requirements and allows it to handle complexities that are unique to India, said brokerage KRChoksey Shares and Securities Pvt. Ltd.
It also reduces capital expenditure, mitigates risks related to direct fuel and maintenance costs, and depreciation, besides reducing risks from changes in laws and regulations, it said.
Mahindra Logistics lagged peers on return ratio comparison.
It had a cash balance of more than Rs 108 crore as of March 31, and negligible debt.
Valuations
At the upper end of the price band, earnings per share for the year to March stood at Rs 6.4 and the price-earnings ratio at 67 times, according to BloombergQuint’s calculations.
Shareholding Pattern
The promoter will sell shares worth Rs 415 crore, bringing down their holding to 61 percent. Mahindra Logistics will continue to be a subsidiary of Mahindra & Mahindra after listing.
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