ICIC
I S
ecurit
ies –
Retail E
quit
y R
esearch
Init
iatin
g C
overage
August 28, 2019
CMP: | 338 Target: | 415 (23%) Target Period: 12-18 months
Mahindra Logistics (MAHLOG)
BUY
Non-auto client additions to aid growth…
MLL is one of the largest 3PL players in the country, with over 650 clients
and operating locations. The company operates an asset light business with
investment in assets (vehicles, warehouses) being done by ~ 1500 business
partners. Post GST implementation, the 3PL industry is expected to grow at
16-18% in the medium to long term, amid a change in perspective of
manufacturers whereby higher proportion of logistics operation are being
outsourced to specialised 3PL players like MLL. We expect its SCM segment
(90% of revenue) to grow at 8% CAGR to | 4062 crore in FY19-21E and PTS
segment (10% of revenue) to grow at 13% CAGR to | 492 crore in FY19-21E.
Sustained revenue growth accompanied by a gradual improvement in
margins would provide thrust to earnings growth in FY19-21. We expect EPS
to grow at 16% CAGR to | 16.1 in FY19-FY21E. Hence, we initiate coverage
on Mahindra Logistics with a BUY recommendation, with a target price of
| 415/share (at 26x FY21).
Scalable asset light model amid huge market opportunity
MLL is one of the major players in the nascent but rapidly growing Indian
3PL industry (~US$6 billion in FY17) that has been growing at 18-20% CAGR
in the last few years. Growth is driven by a higher proportion of logistics
operations being outsourced by manufacturers to 3PL players. MLL
possesses key success enablers like bouquet of end-to-end logistic services,
asset light model & presence in high growth industries along with support
of anchor client (M&M) enabling it to grow in line with industry growth.
Non Mahindra SCM segment to drive revenue growth
MLL’s revenues are expected to grow across its three segments, with non-
Mahindra SCM segment growing at 12% CAGR, buoyed by healthy client
addition and moderate growth in revenue per client. On the Mahindra group
SCM segment, MLL is expected to moderately grow at 6% in spite of the
expected pressure in sales of automotive and farm equipment in the short
term, the growth is mainly led by the rising value added work performed by
MLL within the AFM group and growing penetration across various
companies within the Mahindra Group.
Rising client dependence on MLL to provide competitive edge
Increased revenue share from the non-Mahindra business (especially FMCG,
e-commerce) would enable higher warehousing revenues, providing higher
gross margins and translating into higher profitability for the company.
Considering the rising importance of services like inbound, outbound and
in-factory logistics along with prospects of performing further value added
services, enabling 3PL players to get a higher wallet share of the clients
business with increased client dependency, we initiate coverage on
Mahindra Logistics with a target price of | 415/share.
Key Financial Summary ss
| crore FY17 FY18 FY19 FY20E FY21E CAGR
Net Sales 2,666.6 3,416.1 3,851.3 4,098.6 4,554.3 8.7%
EBITDA 76.3 119.7 151.2 168.0 200.4 15.1%
PAT 45.6 64.0 85.6 94.6 114.6 15.7%
P/E (x) 53.0 37.7 28.2 25.5 21.1
M.Cap/Sales (x) 0.9 0.7 0.6 0.6 0.5
RoCE (%) 18.7 23.4 25.8 24.7 25.5
RoE (%) 13.1 15.3 17.2 16.3 16.8
Source: ICICI Direct Research, Company
Particulars s
Market Capitalisation (| cr) 2,414.9
52 Week High / Low (|) 605/326
Promoter Holding (%) 58.5
FII Holding (%) 17.3
DII Holding (%) 11.0
Dividend Yield (%) 0.3
Key Highlights
3PL industry expected to continue its
growth momentum over next few
years (16-18%) and reach ~US$11
billion by FY21
Asset light business with investment
in assets (vehicles, warehouses)
being done by ~1500 business
partners
Expect EPS to grow at 16% CAGR in
FY19-21E
Price Chart
0
100
200
300
400
500
600
700
12000
13000
14000
15000
16000
17000
Nov-17 May-18 Nov-18 May-19
BSE 500 Index Mahindra Log (RHS)
Research Analyst
Bharat Chhoda
Harshal Mehta
ICICI Securities | Retail Research 2
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Company Background
In FY2000, Mahindra & Mahindra (M&M) Ltd set up its logistics business as
a separate division, which served the transportation, warehousing and in-
factory needs of M&M Ltd. Mahindra Logistics (MLL) was formed in FY08
while the logistics business of M&M Ltd was transferred to MLL. Initially, the
company grew its operations by catering to a limited number of clients. Post
its business transformation exercise via a strategic consultancy firm in FY15,
it has reached over 650 clients and is operating in locations in FY19. The
company operates in two segments i.e. i) supply chain management (90%
of FY19 revenues) and ii) public transportation system (balance 10%).
In FY15, the company acquired a 60% stake in Lords Freight (India) Pvt Ltd
(LFI), which is primarily engaged in the business of freight forwarding and
warehousing logistics services. LFI clocked | 174 crore in revenues in FY19.
Subsequently, it increased its stake in Lords from 60% to 82.9% in FY19.
Also, in FY15, MLL partnered with Indian Vehicle Carriers Logistics (IVC) to
form 2X2 Logistics Pvt Ltd. The JV is primarily involved in automotive
outbound solutions for two and four wheeler industries. Currently, the JV
owns 150+ vehicle carriers. MLL also acquired a stake in Boston based
Transtech Logistics (ShipX), a software as a service (SAAS) based transport
management solution (TMS) platform provider, which serves the SCM
automation needs of 3PLs, shippers and transporters.
Exhibit 1: Key Events
FY2000
•Logistics
business set
up as
separate
division of
M&M Ltd
FY09
•Logistics
business of
M&M Ltd
transferred
to MLL
FY11
•Achieved
|1000 crore
revenues
FY14
•Investment by
Normandy and
Kedaara AIF
•Enters e-commerce
segment
FY15
•Business
transformatio
n exercise by
strategic
consultant
•Lords
acquisition
•2X2 logistics
JV formation
FY16
•Enters into
business
contract with
one of India's
largest steel
conglomerate
FY18
•Completes
IPO of
company
•Achieves |
3400 crore
consolidated
revenue
FY19
•Acquires
stake in
Transtech
Logistics
(ShipX)
•Increases
stake in
Lords from
60% to 82.9%
Source: Company, ICICI Direct Research
As on FY19, MLL achieved revenues of | 3851 crore, of which SCM
comprised | 3466 crore and PTS | 386 crore. Further, M&M’s portion of
SCM’s revenues was at | 2100 crore (61% of SCM revenues) with non-M&M
at | 1366 crore. Subsequently, revenues of transportation and warehousing
from the M&M SCM segment were at | 1934 crore (92%) and | 166 crore
(8%), respectively. Revenues of transportation and warehousing from the
non-M&M SCM segment were at | 1012 crore (74%) and | 354 crore (26%),
respectively. Overall, transportation and warehousing mix comprised | 2954
crore (85%) and | 520 crore (15%), respectively, of SCM revenues.
ICICI Securities | Retail Research 3
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 2: Business segments
Source: Company, ICICI Direct Research
On the basis of clients, Mahindra group constituted 56% (~| 2157 crore) of
MLL’s revenues whereas non-Mahindra clients comprised 44% (~| 1594
crore). Auto and farm segment dominates the Mahindra group pie (ex-
Mahindra PTS) at 90-95% of Mahindra group revenues. On the non-
Mahindra client side (ex-non-Mahindra PTS), auto comprised 25% while e-
commerce, engineering, consumer durables, bulk and pharma formed
~15% each of non-Mahindra (ex-non-Mahindra PTS) revenues.
Exhibit 3: Business segmentation based on clients
Source: Company, ICICI Direct Research
Mahindra Logistics Ltd (|3851 cr)
Business segments
SCM (|3466 cr) - 90%
Mahindra SCM (|2100
cr) - 55%
Transportation
(|1934 cr) - 50%
Warehousing
(|166 cr) - 5%
Non-Mahindra SCM
(|1366 cr) - 35%
Transportation
(|1012 cr) - 26%
Warehousing
(|354 cr) - 9%
PTS (|386 cr) - 10%
Mahindra Logistics Ltd (|3851
cr)
Client based segmentation
Mahindra Group (|2157 cr) - 56%
Auto and Farming - 48-51%
Others - 3-5%
PTS (~|57 cr) - 2%
Non-Mahindra Client (|1594 cr)
- 44%
Auto (~|340 cr) - 9%
Engineering - 5%
E-Commerce - 5%
Pharma - 5%
Cons Goods- 5%
Bulk- 5%
PTS (~|329 cr) - 9%
ICICI Securities | Retail Research 4
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Management Profile
Zhooben Bhiwandiwala
Chairman and non-executive Director
Zhooben Bhiwandiwala joined the Mahindra Group in 1985. He has over 31
years of experience in finance, legal, significant cross border M&A, HR,
marketing, strategy and other commercial functions. He had been involved
with international operations, investments in new businesses, start-ups, joint
ventures and mergers and acquisitions during his deputation to international
assignments in Mahindra Group. Mr Bhiwandiwala is currently the President
- Mahindra Partners and Group Legal and a member of the Mahindra Group
Executive Board. He currently heads the Mahindra Partners division. He is
on the boards of several Mahindra & Mahindra group companies. He has
been on the MLL board since April 28, 2009.
Pirojshaw Sarkari, 51 years
Chief-Executive Officer
He graduated from the University of Mumbai in 1987 with a bachelor’s
degree in Commerce. Also, he is a qualified Chartered Accountant. He has
also completed a course on Mahindra Universe from Harvard Business
School, Boston. Prior to joining MLL, he served as a managing director in
UPS Jetair Express Pvt Ltd and UPS International Inc, Philippines. He joined
MLL on April 1, 2010.
Rampraveen Swaminathan, 54 years
Chief-Executive Officer (Designate)
Mr Swaminathan has two decades of relevant industry experience spanning
the automotive, paper and energy sectors. He has a strong track record of
leading businesses including as CEO and MD of International Paper APPM,
a publicly listed company. He has done his MBA in Finance and Strategy, TA
Pai Management Institute, India and holds a bachelor’s degree in
accounting, from the University of Bangalore. His other stints include
positions with the Tata group, Cummins and Schneider. He is expected to
become the CEO and KMP of the company from October 1, 2019,
succeeding existing CEO, Pirojshaw Sarkari.
Yogesh Patel, 54 years
Chief-Finance Officer
Yogesh Patel was appointed chief financial officer of the company with effect
from September 1, 2018. He is a chartered accountant and has ~20 years of
experience in finance. His areas of expertise include pricing and commercial
structuring, procurement, treasury, etc. Mr Patel has held senior leadership
positions in finance with organisations like E&Y (Director –Finance), IBM
(Country Finance Planning Manager), Wipro (Vice President – Finance).
Sushil Rathi, 54 years
Chief Operating Officer
He currently manages the supply chain management business. He holds a
postgraduate diploma in Industrial Engineering from National Institute for
Training Industrial Engineering. Prior to joining MLL, he worked with
Anantara Solutions Pvt Ltd, Premier Automobiles and Satyam Computer
Services. He was awarded with the supply chain visionary of the year award
by Kami Kaze. He joined MLL on March 21, 2011.
ICICI Securities | Retail Research 5
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Industry Background
Logistics plays a key role in any organisation, mainly due to its influence on
customer satisfaction and costs, thereby providing a competitive edge to a
company over its peers. As per Crisil estimates, the Indian logistics industry
is expected to grow at 13% CAGR to | 9.2 trillion in FY20 from | 6.4 trillion
in FY17 (estimated). Transportation dominates the share at ~88% in FY17
(estimated) while warehousing constituted 12% of the pie. Globally, in
developed economies, the warehousing component is much higher than in
India (upwards of 20-30%). Road transportation and warehousing in India is
fragmented in nature, with unorganised players dominating the pie.
Exhibit 4: Indian logistics industry FY17 (estimated)
Source: RHP, ICICI Direct Research
Overall, logistics players can also be segmented on the basis of origin of
service provider and types of services it provides.
Exhibit 5: Logistics players
Source: RHP, Crisil Report, ICICI Direct Research
The 3PL business formed ~6% of the total logistics industry and is expected
to grow 16-17% till FY21E, mainly due to increased outsourcing trend,
higher value added services, increased scalability, etc. 3PL comprises about
one-fifth of the logistics spend of various sectors and is expected to rise to
one-fourth of the logistics spend.
Exhibit 6: 3PL market size
Source: Company, Crisil Report, ICICI Direct Research
Automobiles dominate the Indian 3PL share whereas highest growth is
expected to be seen in the e-commerce, consumer durables and organised
retail segment.
71%
16%
1%
4%
7%1%
Road freight transportation
Rail freight transportation
Coastal freight transport
Cold chain warehouse
Warehouse
CFS/ICDs
1 PL Logistics services carried by an In-house team
2 PL Logistics player providing either transportation or warehousing services
3 PL Logistics player acting as a single vendor for all logistics related services
4 PL Logistics player which coordinates activities of various 3PL to a company
40000
55000
74000
0
20000
40000
60000
80000
FY17 FY19E FY21E
| c
rore
3PL market size
ICICI Securities | Retail Research 6
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 7: Sectors employing 3PL
Sector FY17 FY19EExpected CAGR between
FY19-FY21 (%)
Automotive Components 10800-11200 13900-14200 10-12
Cars and UV 6600-6800 9100-9500 10-12
Commercial Vehicles and tractors 2500-2700 2900-3100 8-10
Two and three wheelers 5400-5600 6900-7100 13-15
Engineering 300-500 430-500 20-22
E-Commerce 5900-6200 9970-10000 30-32
Consumer Durables and FMCG 2000-2200 3100-3200 24-26
Pharmaceuticals 2200-2400 2600-2800 8-10
Bulk 800-1000 900-1100 6-8
Organised Retail 2700-2900 4500-4700 29-31
Telecom 20-40 30-40 -
3PL market size (| cr)
Source: RHP, Crisil Report, ICICI Direct Research
A supply chain management logistics model (that employs 1PL, 2PL, 3PL
and 4PL) consists of an arm of a) inbound logistics, b) within factory logistics
and c) outbound logistics. Inbound relates to transport of raw material to the
factory while outbound relates to transport of finished product to the
warehouse/distributor/retailer. In and out movement from factory and
between warehouses is called primary logistics while movement from
warehouse to distributor/retailer is called secondary logistics.
Exhibit 8: Supply chain management model
Source: Company RHP, Crisil Report, ICICI Direct Research
Exhibit 9: Services provided by SCM
Source: Company presentation, ICICI Direct Research
ICICI Securities | Retail Research 7
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
PTS industry: The people transport solutions (PTS) business relates to
transport services provided by corporates for exclusive usage by
employees. The cost is borne by the corporate and not the employee.
Exhibit 10: Types of transportation
Source: Company RHP, Crisil Report, ICICI Direct Research
As per Crisil estimates, the PTS industry is expected to grow at a CAGR of
8.5-9.5% to | 8500-9500 crore in FY20E, mainly driven by IT and Information
Technology enabled Services (ITeS) sectors. IT and ITeS sector (3.8 million
employees) are the biggest users of PTS services.
Exhibit 11: PTS industry size
Source: Company RHP, ICICI Direct Research
The strong growth prospects of PTS can be attributed to the increasing
employee base of the IT and ITeS sector, shift of office to suburban areas,
an emerging trend of corporate shuttle buses, etc. Large organised players
with a technology platform and dedicated fleet are expected to grow at a
faster rate than only fleet provider players as companies outsource their
entire PTS function to a third-party player.
7000
9000
0
3000
6000
9000
12000
FY17 FY20E
| c
rore
PTS market size
ICICI Securities | Retail Research 8
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Investment Rationale
Indian logistics growth expected to outperform global peers
The India logistics market accounts for 13-17% of the country’s GDP spend.
As per a Knight Frank report (India warehousing market report 2018), this is
double the logistics cost to GDP ratio in developed countries, such as US,
Hong Kong and France (6-9%), lower only to China (18-19% of GDP) as the
Chinese economy is primarily driven by industrial sector (46% vs. 20% in
US and 18% in India). As per a McKinsey and Co report, of the total logistics
costs, indirect costs comprise 40% share, which includes theft, damage,
inventory carrying costs and losses in transit. In contrast, in developed
countries, these comprise nearly 10% of logistics costs, mainly due to an
efficient supply chain.
Exhibit 12: Logistics as percentage of GDP
Source: TCI Express presentation, ICICI Direct Research
As India is in its initial stages of evolution compared to its peers such as the
US and China, it has the potential to grow at higher rates for a longer period
of time, before it catches up with these countries.
Exhibit 13: Evolution of logistics sector
Source: Knightfrank research
89
5
4
6
3
1
2
0.5
0
2
4
6
8
10
12
14
16
18
India China US
Transportation Admin/others Warehousing
ICICI Securities | Retail Research 9
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
As per Crisil Research, India’s road freight traffic is expected to continue to
grow at 6-8% CAGR in FY20-24. At the same time, rail freight is expected to
grow at 7-9% in the same period, led by the commissioning of Dedicated
Freight Corridor and uptick in economic activity.
GST implementation aids greater adoption of 3PL model
The replacement of multiple taxes on manufacture, sale and consumption
of goods and services to a single tax regime is expected to greatly benefit
the organised logistics sector on both the transportation and warehousing
fronts. Post the GST bill implementation, clients have been able to benefit
from input tax credit over the tax charged on transport of goods and
services, when they deal with a tax compliant logistics player. Over the
medium to longer term, GST & E-way bill are expected to result in a shift of
market share in favour of organised players. This is on account of the fact
that unorganised players are expected to become less competitive owing to
increased cost of compliance providing an opportunity to larger organised
players to capture a higher market share on a sustained basis.
On the transportation front, previously, services provided by the Goods
Transport Agencies (GTA) were liable to pay service tax via a reverse charge
mechanism (RCM), in which the receiver of goods and services is
responsible for paying the taxes. The GST regime respects the previous tax
regime while the GTA may also opt to pay via forward charge mechanism
(FCM). Mahindra Logistics has migrated from RCM to FCM, by convincing
both its clients and supply side players (transporters) to move to FCM,
thereby deriving benefit of input tax credit.
Exhibit 14: GST tax regime
Source: Company, ICICI Direct Research
On the warehousing front, one of the biggest changes that GST
implementation has brought to the supply chain of various businesses is the
consolidation in the warehousing sector. Earlier, on account of various
indirect taxes (octroi duty, entry tax, CST), instead of operational efficiency,
tax efficiency was the key parameter in setting up warehouses. This had
resulted in setting up of multiple inefficient stocking and distribution location
in each state. Post implementation of GST, warehousing has moved from
being “tax-efficient” to “supply chain efficient”. Thus, the number of
warehouses has drastically reduced (moved from being more region
specific to centrally located) and become bigger in size at strategic locations.
1) Reverse Charge Mechanism
2) Forward Charge Mechanism
Supplier
•No GST charged
Transporter (GTA)
•No GST charged
Recipient
•GST paid to the Govt and no Input Tax Credit
Supplier
•GST charged to GTA and paid to the Govt
Transporter (GTA)
•GST charged to recipient
Recipient
•GST paid to GTA and can avail Input Tax Credit
ICICI Securities | Retail Research 10
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 15: Changes in supply chain post-GST
Source: Company, ICICI Direct Research
Typically, post-GST, supply chains are being designed in such a way that
the run from the factory to the central warehouse has reduced while the
secondary run from the warehouse to the regional distributor/stockist has
increased. Thus, the challenge before various companies remains two-
pronged: i) optimise the supply chain so that assets do not remain
underutilised (i.e. trucks carrying capacity not efficiently utilised) and ii)
higher investments into building bigger warehouses, tracking capabilities.
Outsourcing of various supply chain activities has a beneficial effect on both
players, the client and the 3PL firm. It is a “win-win” game, as it helps the
client to focus on its core capabilities of manufacturing, building brands, etc.
On the other hand, it helps the 3PL firm achieve greater scale and optimal
asset utilisation i.e. lower empty running costs, network optimisation, etc,
thereby, lowering logistics costs for all clients. Thus, a shift in the supply
chain model provides an opportunity for 3PL players like MLL to optimise
routes, locations and provide customised logistics solutions to its clients.
Asset light MLL well poised to capture 3PL growth opportunity
Assets required by a 3PL player for its functioning depends on four functions
a) transportation, b) employees c) technology and d) warehousing. MLL
selects its business partners that own these assets, based on past
experience, financial condition, service commitment and track record on
performance on KPIs. Overall, the company has ~1500 business partners,
which cater to its requirements in the SCM, PTS division. MLL has also set
up business partner development and loyalty programmes to motivate its
existing business partners to contribute more assets while improving
service quality and performance and also expand MLL’s network of business
clients.
Transportation: The road transportation segment in India is characterised by
an average low fleet ownership and is highly fragmented. MLL has contracts
with various truck owners, truck and fleet aggregators, passenger vehicle
owner and aggregators. The company typically has long term partnerships
with these players. They provide MLL access to various vehicles like 1-tonne
to more than 40-tonne capacity. The large fleet provides MLL with flexibility
to scale up its operations whenever required and cover various routes and
enables MLL to avoid heavy investment into assets before entering into a
dealing with existing and newer clients. The business partner is required to
1) Pre-GST scenario
State 1
State 2
2) Post-GST scenario
State 1
State 2
Distributor/
stockist
Distributor/
stockist
Regional
warehouse
Regional
warehouse
Factory
FactoryCentral
warehouse
Distributor/
stockist
Distributor/
stockist
ICICI Securities | Retail Research 11
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
carry out safety checks and preventive maintenance of the vehicle for longer
vehicle life.
Exhibit 16: Transporter operating cost structure
Source: ICRA, ICICI Direct Research
MLL helps its business partners like small fleet operators to gain more
business, reduce idle time and provide training to drivers. By having a fuel
pass through clause with its clients, MLL is able to cover the volatile fuel cost
(biggest cost for fleet owners) for the transporter.
Manpower: MLL being a 3PL service provider is in a people intensive
business with 17840 employees (including permanent, fixed term contract
and third party payrolls). As on March 31, 2019, Mahindra Logistics had 3631
permanent employees on its payroll, with a median salary of | 3.2 lakh.
Exhibit 17: Growth in MLL permanent employee base
17471871
2256
2656
3004
3631
7.1
20.6
17.7
13.1
20.9
0
5
10
15
20
25
0
700
1400
2100
2800
3500
4200
FY13 FY14 FY16 FY17 FY18 FY19
Permanent employees Growth (%) (RHP)
Source: Company, ICICI Direct Research
A significant chunk of the total employee base comprises temporary and
fixed term employees, who are recruited, trained and retained by third-
parties (MLL business partners).
Exhibit 18: Segmentation of 17840 employees (FY19)
20%
72%
8%
Permanent employees
Temporary employees
Fixed term contract
Source: Company, ICICI Direct Research
In addition to the recruitment of several employees, MLL has also been
enhancing its return on employed human capital (both permanent and
60%
7%
12%
7%
8%
1%5%
Fuel
Tyre
Toll
Human
Investment
Government
Other expenses
ICICI Securities | Retail Research 12
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
contractual workers). MLL was able to earn a return of $0.74 in FY19, from
earlier $0.71 levels in FY15.
Exhibit 19: Human capital RoI (%)
70.7
65.0
73.374.1 74.2
60.0
62.0
64.0
66.0
68.0
70.0
72.0
74.0
76.0
FY15 FY16 FY17 FY18 FY19
Return on Human Capital (%)
Source: Company, ICICI Direct Research
Technology: Network optimisation and establishment of an asset light
model for 3PL players relies greatly on technology usage. Hence, there has
been an increasingly greater adoption of it among logistics players.
Technology enables real time monitoring of operations and consignment
deliveries from control towers, which are connected to various hubs and
spokes. The company continues to invest in technology, both internally
developed and through external partnership. MLL spends | 25-30 crore each
year as capex (majority of which goes towards building technology). Major
MLL investment in technology includes:
a) Transportation monitoring system (TMS): Provides control over
transportation operations, which includes planning, vehicle
allocation, vehicle traceability, route and freight optimisation and
reduction in billing cycles for clients. MLL has developed two
varieties of TMS i) MILES (transportation of finished automobiles) ii)
MyCargo360 (deployed across all industry verticals)
b) Central Control Tower System (CT): Provides enhanced control over
transportation operations and is used along with TMS and enables
MLL to provide entire segment of logistics activities to clients (e.g.
from production plant to central storage facility)
c) Mahindra Warehouse Management System (MWMS): It is an
internally designed system and is used to manage warehouse and
logistics operations. It can interface with multiple client’s ERP
systems and enables MLL to operate multiple clients in a single
warehouse as well as single client in multiple warehouse
d) Other platforms like solutions design systems, E-auction platform,
etc
ICICI Securities | Retail Research 13
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 20: MLL technology platform
Source: Company, ICICI Direct Research
Warehouse: MLL operates warehouses across India. As on FY19, the
company operated on 15.3 million square feet (mn sq ft) of space. MLL also
manages its client’s warehouses (roughly 35-40% of overall managed
space). All remaining facilities have been acquired by the company on a
lease or license agreements with third parties. MLL typically enters into three
to five years contract with its clients while the lease and license agreement
matches the warehousing arrangements with third parties (five years with
an option to extend for another five years with infra players).
Exhibit 21: Warehousing space (million square feet) and lease rentals paid (| crore)
10.013.5
15.3
39.9
56.6
67.4
0
10
20
30
40
50
60
70
80
FY17 FY18 FY19
Warehousing space (million square feet) Rent (| crore)
Source: Company, ICICI Direct Research
Mahindra warehouse can be split into various subcategories:
a) Multi-user warehouses: Provides space to multiple users and
operates on a variable cost model with fixed minimum prices for
services. These are typically used as regional distribution centres,
satellite warehouses with certain large format warehouses in central
locations
b) Built to suit warehouses: Built based on client needs. These are
typically used in central distribution centres or regional distribution
centres and allow consolidation synergies due to economies of scale
(suited to a client)
c) Stockyards: Used for storage and further transportation of finished
vehicles (operated 50 stockyards in FY19). Provides services such as
inventory management services
ICICI Securities | Retail Research 14
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
d) Cross-docks and network hubs: Used to feed component and parts
into manufacturing plants across India as various parts are collected
from several locations and consolidated at the cross-dock facility
Group companies provide multiple opportunities to grow
Mahindra group is a conglomerate of 130 plus companies and is diversified
over 20 industries and countries. The brand enables the company to build
long standing relationship with its several business partners (that helps it to
stay asset light) and also acquire a large number of non-Mahindra clients.
Exhibit 22: MLL FY19 SCM revenue bifurcation
Source: Company, ICICI Direct Research
However, the group also provides MLL with an opportunity to cater to its
wide number of companies. MLL currently caters to four of its companies
while M&M auto and farm segment (AFS) comprises ~90-95% of MLL’s
revenues. MLL currently captures a smaller wallet share (lower than 25-30%)
of the estimated potential groups spend. Thus, going ahead, the other
Mahindra group businesses (non-AFS), are expected to increasingly
contribute higher share of MLL revenues.
Exhibit 23: MLL Mahindra group SCM revenue bifurcation
Source: Company, ICICI Direct Research
Within the AFS division, MLL’s growth is dependent on the type of vehicle
getting produced (2-W, 4-W, CV, tractor, etc), location of manufacture (more
than 10 locations across India) and the demand pattern. For example, MLL
gains greater revenue if the vehicle is produced in the south location and
higher demand is seen in the east location (i.e. greater miles to transport the
vehicle). Over the years, MLL has been able to provide almost entire logistics
services for the Mahindra group’s AFS division. MLL now also competes for
newer entity JVs formed by the Mahindra group in diverse areas like solar,
defence, retail, auto-components, etc.
We expect the Mahindra group’s SCM revenues to remain largely at 57-59%
in FY20 and FY21. This is in spite of the expected subdued volume growth
in automotive and farm equipment, led by the rising MLL share of value
added services per vehicle (including higher in-factory logistics) and higher
contribution from the non-AFS pie.
| 2100,cr 61%
| 1366,cr 39% Mahindra Group SCM revenues
Non-Mahindra SCM revenues
95%
5%
AFS
Non-AFS
ICICI Securities | Retail Research 15
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 24: MLL Mahindra group SCM revenues (| crore)
1419.0
1820.0
2100.02171.3
2338.4
0.0
500.0
1000.0
1500.0
2000.0
2500.0
FY17 FY18 FY19 FY20E FY21E
MLL Mahindra Group SCM revenues
6% FY19-21 CAGR
Source: Company, ICICI Direct Research
MLL focus on client acquisition to drive SCM sales ahead
Auto comprises roughly 25% of the MLL non-Mahindra SCM revenues while
the rest of the pie is equally distributed (~15% each) between e-commerce,
engineering, FMCG & consumer durables and pharmaceuticals & bulk. As a
3PL entity, MLL has historically possessed expertise in the auto segment
[just-in-time (JIT)] inventory practice), which it is actively seeking to replicate
in other high growth segments. On an overall SCM basis (both Mahindra,
non-Mahindra) share of auto has come down from ~85% in FY15 to ~66%
in FY19. The management expects the trend to further continue, going
ahead.
Exhibit 25: MLL non-Mahindra SCM revenue pie
25%
15%
15%
15%
15%
15%
Auto
E-Commerce
FMCG & Consumer Goods
Engineering
Bulk
Pharma
Source: Company, ICICI Direct Research
MLL served 650 plus client and operating locations in the non-Mahindra
SCM segment in FY19. Post GST implementation, MLL has witnessed
changes in the clients’ organisation of logistics and supply chain networks,
which also provides it an opportunity to gain more clients as MLL can assist
them to optimise their new routes, supply chain and provide value added
services. For example, e-commerce can provide opportunities for labelling,
boxing, un-boxing, inventory management, bill generation, etc.
A diversity in service portfolios allows the company to service existing and
potential clients across multiple industry verticals. In SCM business, MLL
serves clients such as Volkswagen India Pvt Ltd, Vodafone India, Thermax,
JSW Steel, Ashok Leyland, Siemens, Bosch, BMW India Pvt Ltd, 3M India
and Mercedes-Benz India Pvt Ltd in the automotive, engineering, consumer
goods, pharmaceuticals, e-commerce and bulk industry verticals,
respectively.
ICICI Securities | Retail Research 16
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 26: MLL non-Mahindra SCM clients
Source: Company, ICICI Direct Research
MLL offers customised logistics solutions developed by the solutions design
team that improves supply chain elements for its clients, including service
levels, cost, quality, scalability & visibility. They also plan & design
transportation networks and can remodel storage layouts to bring efficiency
in clients warehousing and in-factory logistics operations. MLL boasts a
client retention rate of 100% for top 25 SCM, non-Mahindra group clients.
Exhibit 27: Opportunities for MLL in non-auto sectors
Sectors Opportunities for MLL
E-commerce Trend seen in putting up smaller warehouses near consumption centres for quicker
deliveries. MLL can service these smaller warehouses (less than 1 lakh square feet) that
have been set up by e-commerce players
FMCG, Retail & Cons
Durable
1) Post GST, to put up a large distribution centre and integrate the company server IP
with the logistics player to have visibility
2) To service the rising need of distributor such as increased visibility and predictability,
once order is placed by them.
Engineering Customised service required as parts are costly, differ in size
Pharmaceuticals 1) Reduction in C&F agents serving to various states and consolidation of warehouses
2) Transportation constitutes major share, hence requires greater optimisation in post
GST scenario
3) Complex distribution chain, in case of exports, 3PL can provide integrated end to end
logistics
Bulk Cost sensitive towards handling of raw material (makes up 18-20% of sales) and hence
requires greater optimization of truck run
Source: Company, ICICI Direct Research
We expect a net addition of 35-40 clients every year till FY21, backed by its
strong brand pull and satisfaction of existing customers. The MLL non-
Mahindra SCM revenue is expected to grow at 15% in FY19-21E to | 1820
crore, led by strong customer addition, gaining share from competitors and
increasing wallet share from existing clients (by outsourcing existing
functions and further providing value added services).
ICICI Securities | Retail Research 17
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 28: Non Mahindra SCM revenues (| crore)
952.8
1256.0
1366.0
1491.7
1723.6
0.0
500.0
1000.0
1500.0
2000.0
FY17 FY18 FY19 FY20E FY21E
Non-Mahindra SCM revenues
12% FY19-21 CAGR
Source: Company, ICICI Direct Research
SCM margins to benefit from higher warehousing
As part of its SCM business, MLL consults and designs supply chain for
clients, ranging from transportation, warehousing, international freight
forwarding and other value added services. MLL’s SCM segment, on a
blended basis (both M&M group, non-M&M businesses) can be segmented
into transportation (~85% of SCM revenues) and warehousing (~15%) in
FY19. Further, M&M group’s SCM pie can be bifurcated into ~92%
transportation and ~8% warehousing with the non-M&M SCM segment into
74% transportation and 26% warehousing. Typically, MLL’s Mahindra group
SCM segment deals in delivery of finished vehicles (outbound: inbound
roughly at 75:25), which requires higher transportation component (inbound
for auto usually deals in delivery of spare parts and ancillaries to the auto
manufacturers). On the other hand, MLL’s non-Mahindra SCM has been
seeing the share of revenues of newer clients from warehousing at 40%.
Exhibit 29: Net additions in warehousing space
Source: Company, ICICI Direct Research
Gross margins in transportation are between 6% and 8% compared to 10-
18% seen in case of warehousing. In case of transportation, gross margins
are dependent on the scale of operations i.e. higher vehicle runs at optimal
loads, as driver salary, insurance is fixed. Therefore, for a 3PL company,
greater gross margins from transportation segment depends on the number
of runs as well as on the route and network optimisation, so that truck run is
optimised for load and is not empty in both directions of the run. On the
other hand, an improvement in gross margins in warehousing is time bound
(efficiency through learning and doing the same stuff again and again),
region dependent, type of warehouse (Grade A warehouses can demand
even better margins than usual).
10
13.5
15.3
16.5
17.8
0
5
10
15
20
FY17 FY18 FY19 FY20E FY21E
Warehousing space (million square feet)
ICICI Securities | Retail Research 18
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 30: Trends in gross margins
Source: Company, ICICI Direct Research
PTS division expected to remain strong
In the public transportation system (PTS) division, MLL primarily serves the
IT, ITeS business process outsourcing, banking & financial services,
consulting & manufacturing industries. Crisil defines PTS as transport
services provided by corporates for exclusive use by their employees to
commute from home to office and back. These services are generally
outsourced to third parties with the cost being borne by the company.
PTS services are offered by MLL using its network of 500 business partners
that provide the company with buses and drivers. It also has a presence in
150 plus client and operating location across India. Certain key clients in
India for MLL PTS business include Tech Mahindra, AXISCADES
Engineering Technologies and ANZ Support Services India Pvt Ltd.
MLL’s PTS division is expected to grow at 13% CAGR in FY19-21E led by a
rising employee base, regulations required by companies to provide safety
to its employees and lower transportation costs to clients by optimisation of
routes and connectivity using MLL’s technology platform.
Exhibit 31: MLL PTS division (| crore)
295.1
340.5
385.5
435.6
492.2
0.0
100.0
200.0
300.0
400.0
500.0
600.0
FY17 FY18 FY19 FY20E FY21E
PTS revenues
13% FY19-21 CAGR
Source: Company, ICICI Direct Research
0
5
10
15
20
Transportation Warehousing
Gross margins ranges in
6-8% levels
Gross margins ranges in
10-18% levels
ICICI Securities | Retail Research 19
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Inorganic routes open to build capacity in freight forwarding
MLL has two subsidiaries viz. 2X2 Logistics that provides logistics and
transportation services to OEMs, to carry finished automobiles from
manufacturing locations to stockyards or directly to distributors. The other
subsidiary, Lords Freight is its freight forwarding arm (acquired in FY14), in
which the stake has been recently increased to 83.9%. Its service offerings
include air freight and sea freight forwarding operations for exports and
imports, customs brokerage operations, project cargo services and charters.
Lords is a member of a worldwide partner alliance (WPA) and world cargo
association (WCA) freight forwarding networks.
Currently, freight forwarding makes up 5-6% of revenues of MLL. The
management expects it to reach 10-15% of revenues, going ahead. The
increase in capacity is expected via both the organic and inorganic route.
This would catapult the organisation to a level where it can provide services
in line with its peers. Expansion in international freight forwarding would
enable the company to provide its clients a global reach.
Exhibit 32: MLL subsidiaries (| crore)
16.0
37.8
52.759.2
75.066.8
177.8 174.4
0
50
100
150
200
FY16 FY17 FY18 FY19
2X2 Logistics Lords Freight
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 20
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Financials
Revenues expected to grow at 9% CAGR to | 4554 crore in FY19-21E
MLL’s blended revenues are expected in grow in double digits, with non-
Mahindra SCM segment growing the fastest at 15% CAGR, buoyed by
healthy client addition and moderate growth in revenue per client (both top
20 and ex-top 20 clients). On the Mahindra group SCM segment, MLL is
expected to grow at 6%. This is in spite of the expected moderation in sales
of automotive and farm equipment in the short to medium term, led mainly
by the rising value added work performed by MLL within the AFM group and
also increasing its penetration across various companies within the
Mahindra Group. The PTS segment is expected to grow at 13%, mainly led
by continued outsourcing of logistics related activities and higher employee
addition within IT and ITeS firms. On an overall basis, we expect blended
MLL revenues to grow at 9% CAGR to | 4554 crore in FY19-21E.
Exhibit 33: Revenues expected to clock 9% CAGR in FY19-21 to | 4554 crore
1419.01820.0
2100.0 2171.3 2338.4
952.8
1256.0
1366.01491.7
1723.6
295.1
340.5
385.5435.6
492.2
0
1000
2000
3000
4000
5000
FY17 FY18 FY19 FY20E FY21E
| crore
MLL Mahindra Group division MLL non-Mahindra SCM division PTA division
Source: Company, ICICI Direct Research
EBITDA margins expected to grow 20-40 bps each year to 4.4% in FY21E
MLL reached margins of 3.9% in FY19 from 2.9% in FY17 (an increase of 100
bps in two years). Higher margins in the SCM segment are dependent on
optimisation of transportation as the MLL network grows (also applicable in
case of PTS division) and higher efficiency through skill based handling of
the newer warehouses (timebound). Thus, MLL’s growing investments in
technology are expected to help the company stay asset light as well as
optimise its operations (higher truck utilisation, lower idle asset time, etc),
thus lowering costs. We expect EBITDA margins to grow 20-40 bps each
year to 4.4% in FY21E. Hence, we expect absolute EBITDA to grow 15% to
| 200 crore.
Exhibit 34: EBITDA expected to grow 16% to | 200 crore
76.3
119.7
151.2
168.0
200.4
2.9
3.5
3.9
4.1
4.4
0.0
1.0
2.0
3.0
4.0
5.0
0
50
100
150
200
250
FY17 FY18 FY19 FY20E FY21E
%
| crore
EBITDA EBITDA margins
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 21
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
PAT expected to grow at 16% CAGR to | 115 crore in FY19-21E
PAT has grown at 37% CAGR in FY17-19 to | 86 crore in FY19, led by the
strong growth in the MLL SCM and PTS businesses with a 100 bps increase
in EBITDA margins. We expect capex to remain range bound at | 25-30
crore. Thus, the business is expected to stay asset light. Thus, the interest
and depreciation component will likely stay low and not impact the expected
strong operational performance, which would likely lead to PAT growth in
sync with EBITDA growth.
Exhibit 35: PAT expected to grow 16% to | 115 crore
45.6
64.0
85.6
94.6
114.6
1.7
1.9
2.22.3
2.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
20
40
60
80
100
120
140
FY17 FY18 FY19 FY20E FY21E
%
| crore
PAT PAT margins
Source: Company, ICICI Direct Research
Return ratios, free cash flows to remain strong, going ahead
MLL primarily being an asset light company deals with multiple business
partners to procure the asset it needs (drivers, trucks, buses, etc). MLL
clocked RoE & RoCE of 17.2% & 25.8%, respectively, in FY19. Going ahead,
we expect return ratios to remain strong at similar levels, led by a continued
strong operational performance and lower capex requirements.
Exhibit 36: Return ratios to remain stable
13.1
15.3
17.216.3 16.8
18.7
23.4
25.824.7
25.5
0
5
10
15
20
25
30
FY17 FY18 FY19 FY20E FY21E
%
RoE RoCE
Source: Company, ICICI Direct Research
Similarly, with the end of volatility in cash flow related to the GST
implementation era, FCF is expected to remain strong at | 120 crore in FY21E
(implied 5% yield).
ICICI Securities | Retail Research 22
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 37: Free cash flow yield expected to remain strong
-57.3
-25.3
60.8
78.7
119.5
-2.4
-1.0
2.5
3.3
5.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
-100
-50
0
50
100
150
FY17 FY18 FY19 FY20E FY21E
%
| crore
FCF FCF yield
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 23
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Risks & Concerns
High dependence on auto sector in SCM segment
MLL’s exposure to the auto sector is ~66-68% in the SCM segment.
Although it has reduced the exposure from 85% in FY15, yet the exposure
remains concentrated. Further, with a slowdown in auto sales expected in
the short to medium term, if the company fails to bring further value added
services in the segment or penetrate into other businesses within the
Mahindra group or bring in more clients from non-auto segments, it could
impact its operational performance. Also, a significant slowdown in auto
production in the long term can lead to lower demand for the logistics
company. Seasonality of auto sales, adverse developments like low rainfall
along with perception of Mahindra group as a competitor by OEM clients
could also negatively impact MLL revenues.
MLL serves in fragmented, competitive industry
Segments such as transportation suffer from large oversupply, with truck
aggregators having low barriers to entry and exit. Also, it is commoditised.
Thus, clients can also have low switching costs to competitors, if the service
levels deteriorates. Also, segments such as PTS can suffer from competing
modes of public transportation like car-pooling services (which employers
may reimburse).
High dependence on business partners for staying asset light
Non-availability or delays in obtaining hired vehicles or breakdowns, on-
road repairs or service interruptions may result in a loss of orders or delays
in delivery of goods, any of which could lead to client dissatisfaction and
loss of business. Also, with expanding business in other geographical
locations in India, there may be a shortage of business partners that meet
MLL’s quality standards and other selection criteria. As a result, the
company may be unable to engage a sufficient number of high quality
business partners in a timely manner.
ICICI Securities | Retail Research 24
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Valuations
Asset light model within underpenetrated segment
Increased revenue share from the non-Mahindra business (especially FMCG,
e-commerce) would enable higher warehousing revenues, providing higher
gross margins and translating into higher profitability for the company.
Considering the rising importance of services like inbound, outbound and
in-factory logistics along with prospects of performing further value added
services, enabling 3PL players to get a higher wallet share of the clients
business with increased client dependency, we initiate coverage on
Mahindra Logistics with a target price of | 415/share (at 26x FY21).
Exhibit 38: Valuation summary
Year Sales
(| cr)
Sales Gr.
(%)
EPS
(|)
EPS Gr.
(%)
PE
(x)
EV/EBITDA
(x)
RoNW
(%)
RoCE
(%)
FY17 2666.6 29.2 6.4 26.8 53.0 31.3 13.1 18.7
FY18 3416.1 28.1 9.0 40.3 37.7 19.8 15.3 23.4
FY19 3851.3 12.7 12.0 34.2 28.2 15.7 17.2 25.8
FY20E 4098.6 6.4 13.3 10.2 25.5 13.8 16.3 24.7
FY21E 4554.3 11.1 16.1 21.1 21.1 11.0 16.8 25.5
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 25
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Financial Summary
Exhibit 39: Profit & Loss Statement (| crore)
(Year-end March)/ (| crore) FY18 FY19 FY20E FY21E
Total Operating Income 3,416.1 3,851.3 4,098.6 4,554.3
Growth (%) 28.1 12.7 6.4 11.1
Freight Expense and Charges 3,001.0 3,372.4 3,590.4 3,980.4
Gross Profit 415.2 478.9 508.2 573.8
Gross Profit Margins (%) 12.2 12.4 12.4 12.6
Employee Expenses 229.1 263.8 278.7 305.1
Other Expenditure 66.3 63.9 61.5 68.3
Total Operating Expenditure 3,296.4 3,700.1 3,930.6 4,353.9
EBITDA 119.7 151.2 168.0 200.4
Growth (%) 57.0 26.3 11.1 19.2
Interest 3.8 3.5 3.1 2.4
Depreciation 19.7 22.0 26.4 29.6
Other Income 5.9 7.6 8.2 9.1
PBT before Exceptional Items 102.1 133.4 146.7 177.4
Less: Exceptional Items 0.0 0.0 0.0 0.0
PBT after Exceptional Items 102.1 133.4 146.7 177.4
Total Tax 36.8 46.8 51.4 62.1
PAT before MI 65.3 86.7 95.4 115.3
Minority Interest 1.3 0.8 0.8 0.8
PAT 64.0 85.9 94.6 114.6
EPS Growth (%) 40.3 34.2 10.2 21.1
EPS (Adjusted) 9.0 12.0 13.3 16.1
Source: Company, ICICI Direct Research
Exhibit 40: Balance Sheet (| crore)
(Year-end March) FY18 FY19 FY20E FY21E
Equity Capital 71.1 71.5 71.5 71.5
Reserve and Surplus 348.5 426.8 508.5 610.2
Total Shareholders funds 419.6 498.2 580.0 681.7
Minority Interest 7.0 5.7 5.7 5.7
Total Debt 26.2 28.5 23.5 18.5
Deferred Tax Liability 3.6 0.0 0.0 0.0
Long-Term Provisions 0.0 0.0 0.0 0.0
Other Non Current Liabilities 14.8 16.4 16.7 17.0
Source of Funds 471.1 548.8 625.9 722.9
Gross Block - Fixed Assets 120.7 145.3 165.3 185.3
Accumulated Depreciation 59.2 78.3 104.8 134.4
Net Block 61.6 67.0 60.5 50.9
Capital WIP 0.6 2.6 2.6 2.6
Fixed Assets 62.1 69.6 63.1 53.5
Investments 50.1 87.9 89.6 91.4
Goodwill on Consolidation 4.3 4.3 4.3 4.3
Deferred Tax Assets 17.7 18.7 18.7 18.7
Other non-Current Assets 123.2 120.3 122.7 125.1
Inventory 0.0 0.0 0.0 0.0
Debtors 520.0 631.7 617.6 686.3
Loans and Advances 146.1 202.7 204.7 206.7
Other Current Assets 0.0 0.0 0.0 0.0
Cash 66.0 70.0 123.9 219.2
Total Current Assets 732.2 904.3 946.2 1,112.2
Creditors 486.3 600.1 561.5 623.9
Provisions 3.3 5.2 5.3 5.4
Other Current Liabilities 28.9 51.1 52.1 53.1
Total Current Liabilities 518.5 656.3 618.8 682.4
Net Current Assets 213.7 248.0 327.4 429.8
Application of Funds 471.1 548.8 625.9 722.9
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 26
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
Exhibit 41: Cash Flow Statement
(Year-end March)/ (| crore) FY18 FY19 FY20E FY21E
Profit/(Loss) after taxation 64.0 85.6 94.6 114.6
Add: Depreciation & Amortization 19.7 22.0 26.4 29.6
Add: Interest Paid 3.8 3.5 3.1 2.4
Net Increase in Current Assets -106.4 -168.2 12.1 -70.7
Net Increase in Current Liabilities 95.2 137.8 -37.5 63.6
Others -64.4 14.3 0.0 0.0
CF from Operating activities 11.9 95.0 98.7 139.5
(Purchase)/Sale of Fixed Assets -37.2 -34.2 -20.0 -20.0
Long term Loans & Advances 0.0 0.0 0.0 0.0
Investments 8.5 -25.3 -1.8 -1.8
Others 10.7 -54.3 -22.1 -22.1
CF from Investing activities 19.2 -79.7 -23.8 -23.9
(inc)/Dec in Loan -1.8 2.3 -5.0 -5.0
Dividend & Dividend tax -12.9 -12.9 -12.9 -12.9
Less: Interest Paid -3.8 -3.5 -3.1 -2.4
Other 3.1 2.7 0.0 0.0
CF from Financing activities -15.3 -11.3 -20.9 -20.3
Net Cash Flow 15.9 3.9 54.0 95.3
Cash and Cash Equivalent at the beginning 50.2 66.0 70.0 123.9
Cash 66.0 70.0 123.9 219.2
Source: Company, ICICI Direct Research
Exhibit 42: Ratio Analysis
(Year-end March) FY18 FY19 FY20E FY21E
Per share data (|)
Reported EPS 9.0 12.0 13.3 16.1
BV per share 58.8 69.8 81.3 95.5
Cash per Share 9.3 9.8 17.4 30.7
Dividend per share 1.8 1.8 1.8 1.8
Operating Ratios (%)
Gross Profit Margins 12.2 12.4 12.4 12.6
EBITDA margins 3.5 3.9 4.1 4.4
PAT Margins 1.9 2.2 2.3 2.5
Inventory days 0.0 0.0 0.0 0.0
Debtor days 55.6 59.9 55.0 55.0
Creditor days 52.0 56.9 50.0 50.0
Asset Turnover 28.3 26.5 24.8 24.6
Return Ratios (%)
RoE 15.3 17.2 16.3 16.8
RoCE 23.4 25.8 24.7 25.5
RoIC 25.9 28.3 29.5 35.4
Valuation Ratios (x)
P/E 37.7 28.2 25.5 21.1
EV / EBITDA 19.8 15.7 13.8 11.0
EV / Net Sales 0.7 0.6 0.6 0.5
Market Cap / Sales 0.7 0.6 0.6 0.5
Price to Book Value 5.7 4.8 4.2 3.5
Solvency Ratios
Debt / EBITDA 0.2 0.2 0.1 0.1
Debt / Equity 0.1 0.1 0.0 0.0
Current Ratio 1.3 1.3 1.3 1.3
Quick Ratio 1.3 1.3 1.3 1.3
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 27
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as
the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities | Retail Research 28
ICICI Direct Research
Initiating Coverage | Mahindra Logistics
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as
the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ANALYST CERTIFICATION
I/We, Bharat Chhoda, MBA; Harshal Mehta MTech (Biotech) , Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above
mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in
the report
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI
Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities Limited Sebi Registration is INZ000183631 for stock broker. ICICI
Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance,
general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment
banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons
reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly
confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or
reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no
obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate
that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where
ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness
guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe
for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat
recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy
is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own
investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent
judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign
exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily
a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ
materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other
assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies
mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did
not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI
Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day
of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such
jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come
are required to inform themselves of and to observe such restriction