Analyzing Mahindra Logistics: Growth Potential in India’s Logistics Sector | Stock Analysis

The logistics sector in India is highly fragmented, with unorganized players owning a large portion of the market while regulated players still make up less than 20 percent of the overall pie. This gives plenty of scope for organized players to expand their reach. The strong long-term prospects for the Indian economy, and the growth in consumer and e-commerce trends bode well for the sector, especially the organized sector. Mahindra Logistics is another player in the field of logistics that is involved in supply chain management, freight forwarding and express services.

in bl. portfolio We had recommended that investors book a dividend on the share in June 2021, when it was trading at around INR 571. With a correction of just over 35 percent since then, the valuation makes more sense now. The company currently trades at a forward EV/EBITDA rate of 9.5x and at a good discount to the historical 5-year average of 15.4x. Its competitors, such as Transport Corporation of India and Delhivery, trade at a one-year forward EV/EBITDA ratio of 10.6x and 176.9x. While Mahindra Logistics’ 1-year PE is 47.3 times, since the company was in the investment phase, EV/EBITDA is a better metric for evaluating Mahindra Logistics.

Given the good long-term business prospects, we recommend that investors with a long-term horizon can accumulate stocks now on the dips. While the valuation is reasonable, given the uncertainty about the impact of inflationary pressures and the spillover effects of the global slowdown, we believe that accumulating on dips is better than buying all at once.

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The company’s primary business is contract logistics, also known as third party logistics (3PL), which accounts for about 78 percent of revenue. The company provides logistical support to its customers, including comprehensive warehousing and transportation solutions. It has more than 19 million square feet of storage space under management and more than 500 operating locations across the country. These repositories include a mix of build-to-suit, custom, and multi-user repositories.

Mahindra Logistics has deployed dedicated Material Handling Equipment (MHE) as well as end-to-end automation and is adept at handling customers’ existing warehouses to optimize their performance. It has integrated its Warehouse Management System (WMS) with customers’ ERP to ensure transparency. Warehousing services primarily include inventory control, warehousing management and value added services.

The company uses a transportation management system (TMS) to consolidate load and optimize routes for cost management. It deploys more than 15,000 vehicles each month and provides transportation solutions to clients across industries.

The second business division is B2B express logistics. Its pan-India reach is across more than 19,000 PIN codes, covering most parts of the country, and it carried an average tonnage of more than 30,000 tons last year. The company also has more than 300 transshipment centers and approximately 1,100 haulage lines (long-distance) and medium-mileage trucks.

In October 2022, Rivigo Express, a major express service provider, was acquired by Mahindra Logistics for Rs 225 crore. It expects to leverage Rivigo’s existing network to grow and expand its express service division. The Company began the process of consolidating the Rivigo business with itself in the fourth quarter of fiscal year ’23, which is expected to result in cost optimization and operating leverage. It expects EBITDA for the quick business to be positive from the third quarter of fiscal ’24.

The third business division is Freight and Forwarding – which plans and coordinates the movement of goods across borders for other shippers. Mahindra Logistics offers air freight, ocean freight and project logistics (transportation of goods to a specified construction site) as well. In the fourth quarter of fiscal year ’23, it was stated that this division is facing price pressure, and therefore to maintain profitability, the company is focusing on volume growth. The company handled more than 13,000 TEU (twenty-foot) ocean freight and more than 4,900 tons of air freight in fiscal ’23.

The next section is last mile mobility and delivery – delivering the shipment to the final recipient. The company provides vans (with drivers) or delivery bikes as per customer requirements to complete the delivery or pick-up of the goods.

The mobility business offers transportation solutions as it rents vehicles to companies with trained drivers, provides taxi services as well as overseas excursions.

Finance

Mahindra Logistics’ revenue grew by 24 per cent in FY23 year on year to INR 5,128.3 crore. EBITDA increased by 39.3 per cent year-on-year to Rs.275.6 crore and EBITDA margin increased by 60 basis points to 5.4 per cent. Net profit in FY23 increased by 63 per cent YoY to INR 24.6 crore.