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Buy Mahindra Logistics; target of Rs 300: ICICI Direct

May 23
14:24 2020

ICICI Direct’s research report on Mahindra Logistics

Mahindra Logistics’ results reflected the general economic slowdown, further aggravated by continued slowdown in auto sector (~62% of SCM revenues). This time around, PTS segment (~10% of revenue) also dragged overall revenues (down 17% YoY) while SCM segment (~90% of revenues) fell 20%. However, the warehousing segment continued to remain in the positive growth trajectory (10%) thereby improving the transportation: warehousing mix in the non-Mahindra SCM segment to 70:30. EBITDA margins (without Ind-AS 116 effect) fell 139 bps to 2.6%. Subsequently, EBITDA, PAT de-grew 47%, 57%, respectively. As per the management commentary, non-auto prospects like e-com, freight forwarding, consumer, pharma verticals sustained growth in the crisis, driven by new business acquisitions in existing, new customers in these verticals.

Outlook

With asset heavy players and startups in the logistics sector seeing greater stress in cashflow management, inflated labour cost and other expenses, MLL is well placed to steer the crisis, with strong financials to take advantage of expected consolidation in the sector. While auto continues to dominate MLL segment, MLL has been steadily building up its presence in the e-commerce, freight forwarding, pharma and consumer segments. Also, with changing client profile, MLL has been able to leverage the situation to provide increased warehousing and value-added services (grew 16% in FY20) component in its revenue mix (that provides higher gross margins and translates into higher profitability for the company). We maintain BUY with a target price of Rs 300.


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