About the Issue
Mahindra
Logistics plans to open an IPO of Rs. 829.36 crore through Offer for
Sale (OFS) of 1,93,32,346 equity shares with face value of Rs. 10 per
equity share. The price band for the IPO is fixed at Rs. 425-429 per
share. Eligible employees of the company would get a discount of Rs. 42
per share. The minimum lot size for subscription is 34 shares. The issue
will remain open from October 31 to November 2, 2017. Post allotment,
company will get listed on both BSE and NSE.
Purpose of the issue
The
objects of the offer are to achieve the benefits of listing the equity
shares on the stock exchanges and the company will not receive any
proceeds from the Offer for Sale as all the proceeds will be received by
the selling shareholders namely Mahindra & Mahindra Ltd. (the
promoter), Normandy Holdings and Kedaara Capital Alternative Investment
Fund.
Company Background
Mahindra
Logistics is India’s largest 3PL (third-party logistics) solutions
providers. It follows an ‘asset-light’ business model in which assets
necessary for operations such as vehicles and warehouses are owned or
provided by a large network of business partners. This has enabled the
company to gain scalability of services as well as have flexibility to
develop and offer customized logistics solutions across a diverse set of
industries.
The company's two business segments are Supply Chain Management (SCM) and People Transport Solutions (PTS).
Supply Chain Management business
Under
this segment, the company offers customized and end-to-end logistics
solutions and services including transportation and distribution,
warehousing, in-factory logistics and value-added services. It has over
350 clients, who are serviced from a pan-India network of 24 city
offices and operating locations as on August 31, 2017. It has a network
of over 1,000 business partners providing vehicles, warehouses and the
other assets and services. The company manages over 10 million square
feet of warehousing space spread across multi-user warehouses,
built-to-suit warehouses, stockyards, network hubs and cross-docks. It
serves over 200 domestic and multinational companies operating in
several industry verticals, including automotive, engineering, consumer
goods, pharmaceuticals, e-commerce and bulk. Company’s key clients
include Volkswagen India, Vodafone India, Thermax, JSW Steel, Ashok
Leyland, Siemens, Bosch, BMW India, 3M India, and Mercedes-Benz India.
People Transport Solutions
Under
this segment, company provides technology-enabled people transportation
solutions and services to over 100 domestic and multinational companies
operating in the IT, ITeS, business process outsourcing, financial
services, consulting and manufacturing industries. As on August 31,
2017, it operated PTS business in 12 cities across India. The key
clients for PTS business include Tech Mahindra, AXISCADES Engineering
Technologies and ANZ Support Services India.
Industry Overview
Indian
logistics industry is expected to grow at a CAGR of approximately 13%
to Rs. 9.2 trillion in Fiscal 2020. Government is investing
approximately Rs. 10.3 trillion in roads (national highways, state roads
and rural roads) between Fiscals 2018 and 2022. The 3PL market in India
was at Rs. 325-335 billion in Fiscal 2017, which is expected to grow at
a CAGR of 19-21% to reach ₹570-580 billion by Fiscal 2020. It is
anticipated that sectors such as automobiles, e-commerce, consumer
goods, organized retail and engineering are expected to have high 3PL
growth potential. The PTS industry would grow at a CAGR of 8.5-9.5% to
Rs. 85-95 billion in Fiscal 2020, driven by the IT and ITeS sectors.
Financial Performance
In
FY17, FY16, FY15, company’s consolidated revenue were Rs.2,676.25
crore, Rs.2,077.12 crore and Rs.1,939.55 crore, respectively. The SCM
and PTS segments contribute 89% and 11%, respectively towards the total
revenue. Revenue from SCM segment has grown at CAGR of 64.45% for
FY15-17. Company’s profit after tax for FY17, FY16, FY15 were Rs. 46.06
crore, Rs. 35.96 crore and Rs. 38.52 crore, respectively. The company's
PAT has grown at a CAGR of 22.26% for FY15-17. EPS in FY15 was Rs. 6.64
which rose to Rs. 6.7 in FY17. PAT margin has been in the range of 1-2%
for the past five years which is very low.
Valuation
On
upper price band of Rs. 429, with EPS of Rs. 6.7 in FY17, company’s P/E
works out to 64.03x. We see that this P/E is high. Company’s RoNW
(Return on Net Worth) was 15.19% in FY15 which decreased to 12.84% in
FY17. As there are no listed peers for the company, the issue price
cannot be compared to ascertain whether it is over or under priced.
Our View
We
are sector positive in the long term. However, we are concerned about
company's inconsistent performance and thin margins it is running
in. Company has not been paying dividend because of low profitability.
Also, capital infusion in operations would have helped company however
as it is OFS we see that company will not be receiving any money to
strengthen its operations. Valuation is higher as compared to industry
average ratio. We recommend investors to avoid this IPO.
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