Mahindra Logistics IPO – Should you Subscribe?
Mahindra Logistics IPO would open for subscription on 31st October, 2017. Mahindra Logistics is part of Mahindra Group. Mahindra Logistics Ltd is a leading end to end logistic solutions and service provider in India. Its revenues grew at 17% CAGR in last 3 years. It generated 1.7% margins in FY17. What are the positive factors in Mahindra Logistics Ltd IPO? What are the hidden factors in Mahindra Logistics IPO? Is Mahindra Logistics IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Mahindra Logistics IPO Review.
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About Mahindra Logistics Ltd
They are one of India’s largest 3PL solutions providers in the Indian logistics industry which was estimated at 6.40 trillion in Fiscal 2017. They believe that company competitive advantage is company “asset-light” business model pursuant to which assets necessary for company operations such as vehicles and warehouses are owned or provided by a large network of business partners. company technology enabled, “asset-light” business model allows for scalability of services as theyll as the flexibility to develop and offer customized logistics solutions across a diverse set of industries. they operate in two distinct business segments, supply chain management (“SCM”) and corporate people transport solutions (“PTS”).
1) Company SCM business: They offer customized and end-to-end logistics solutions and services including transportation and distribution, warehousing, in-factory logistics and value added services to company clients. They operate company SCM business through a pan-India network comprising 24 city offices and over 350 client and operating locations as at May 31, 2017. they have a large network of over 1,000 business partners providing vehicles, warehouses and the other assets and services for company SCM business. As at that date, they managed over 10.0 million square feet of warehousing space spread across company pan-India network of multi-user warehouses, built-to-suit warehouses, stockyards, network hubs and cross-docks. As at May 31, 2017, they operated in-factory stores and line-feed at over 35 manufacturing locations. company “asset-light” business model along with company solutions design capabilities enables us to serve over 200 domestic and multinational companies operating in several industry verticals in India,
including automobile, engineering, consumer goods, pharmaceuticals, e-commerce and bulk. they have sourced or developed company customized technology systems in order to provide innovative and cost-efficient solutions and to improve transparency and visibility for company clients.
Certain key clients for company SCM business include Volkswagen India Private Limited, Vodafone India Limited, Thermax Limited, JSW Steel Limited, Ashok Leyland Limited, Siemens Limited, Bosch Limited, BMW India Private Limited, 3M India Limited, and Mercedes-Benz India Private Limited.
In Fiscals 2017 and 2016, company SCM business won several prestigious awards including the “3PL Achiever of the Year 2017” award by Global Logistics Excellence Awards, the “CII Supply Chain and Logistics Excellence (SCALE) Award 2017” and the “3PL Company of the Year 2016” award by Logistics Asia Awards.
2) Company PTS business: They provide technology-enabled people transportation solutions and services across India to over 100 domestic and multinational companies operating in the IT, ITeS, business process outscompanycing, financial services, consulting and manufacturing industries. They offer company services through a fleet of vehicles provided by a large network of over 500 business partners. As at May 31, 2017, they operated company PTS business in 12 cities and over 120 client operating locations across India.
Mahindra Logistics IPO Issue details
- IPO open date: 31-Oct-2017
- IPO close date: 2-Nov-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 425 to Rs 429 per share. Eligible employees of the company would get discount of Rs 42 per share.
- Issue size: Approx Rs 829 Crores on higher price band
- Mahindra Logistics IPO Lot size: 34 shares and 34 shares there-off
- Minimum investment: Rs 14,586
- Leading Managers: Kotak Mahindra Capital and Axis Capital
- Listing: BSE / NSE
- Listing date: 10-Nov-2017
- Download Mahindra Logistics IPO RHP Prospectus from SEBI website at this link.
Objects of the Mahindra Logistics Ltd IPO issue
Below are the objects of this IPO.
1) To achieve the listing benefits of the company
2) Offer for Sale: The Promoter Selling Shareholders propose to sell Equity Shares held by them. Company will not receive any proceeds from the Offer for Sale.
Company Financials (reinstated-consolidated)
1) The company generated revenue of Rs 1,939 Crores for the year ended Mar-15 and Rs 2,676 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 38.5 Crores for the year ended Mar-15 and profit of Rs 46 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 6.7 and 3 years average EPS is Rs 6.24.
Company Financials (reinstated-standalone)
1) The company generated revenue of Rs 1,891 Crores for the year ended Mar-15 and Rs 2,597 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 40.3 Crores for the year ended Mar-15 and profit of Rs 44.7 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 6.58 and 3 years average EPS is Rs 6.26.
What are the key strengths of Mahindra Logistics Limited?
Here are the key strengths of the company.
1) An “asset-light” business model which allows flexibility and scalability in operations and high capital efficiency.
2) Customized, technology driven logistics solutions.
3) Integrated, end-to-end logistics services and solutions.
4) The Mahindra brand and support from the Mahindra Group.
5) Presence across diverse industry verticals with long-standing client relationships.
6) Experienced management team with strong domain expertise.
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What are the Strategies of Mahindra Logistics Ltd?
Here are the key strategies of Mahindra Logistics which it want to focus.
1) Leading global management consulting firms.
2) Continue to grow share of company business from non-Mahindra Group clients.
3) Focus on large revenue clients by providing integrated, end-to-end solutions and continue to provide additional services to existing clients.
4) Continue to diversify company revenues from industry verticals such as consumer, pharmaceuticals, e-commerce and bulk.
5) Continue to focus on enhancements in technology.
6) Leveraging on the changing logistics industry dynamics, particularly with implementation of the GST regime.
7) Continue to establish new multi-user warehouses.
8) Continue to explore new business opportunities in new industry verticals and business segments.
Reasons to invest in Mahindra Logistics IPO
It posted strong revenue growth of 17% CAGR in the last 3 years.
Risk Factors / Reasons not to invest in a Mahindra Logistics IPO
1) It has generated low margins of 1.7% to 2.1% in the last 3 years.
2) They depend significantly on clients in the automotive industry and are highly dependent on the performance of the automotive industry. A loss of, or a significant decrease in business from clients in the automotive industry could adversely affect company business and profitability.
3) They depend on a limited number of clients, which exposes us to a high risk of client concentration.
4) Fluctuations in the performance of the industries in which company clients operate may result in a loss of clients, a decrease in the volume of work they undertake or the price at which they offer company services.
5) Company business and operations depend significantly on company parent and Promoter, Mahindra & Mahindra Limited and the other Mahindra Group entities.
6) They operate in a highly fragmented and competitive industry and increased competition may lead to a reduction in company revenues, reduced profit margins or a loss of market share.
7) They may not be able to manage the growth of company business effectively or continue to grow company business at a rate similar to what they have experienced in the past.
8) Company business is highly dependent on technology and any disruption or failure of company technology systems may affect company operations.
9) Difficulties and uncertainties surrounding the implementation of a GST regime in India may adversely affect company business strategy.
10) They are susceptible to risks relating to unionization of company employees or personnel employed by company business partners.
11) Company contracts with company clients are generally time bound and contain termination provisions. company business may be adversely affected if company contracts with company clients are not renetheyd within the anticipated timeframe, or at all. they may also incur losses as a result of excess capacity at company logistics facilities if contracts are not renetheyd as anticipated.
12) Company failure to perform in accordance with the standards prescribed in company client contracts could result in loss of business or payment of liquidated damages.
13) They may not be able to acquire warehouses and other logistics facilities in desirable locations that are suitable for company expansion at commercially reasonable prices and company expansion plans may be delayed or affected by various factors.
14) They, company Directors, company Promoter and Group Companies are involved in certain legal proceedings, which if determined unfavorably, may adversely affect company reputation, business, financial condition and results of operations company subsidiaries, 2X2 Logistics and LORDS Freight (India) Private Limited (“Lords”) have incurred losses and have had negative cash flows in the last three years.
15) Some of Group Companies have incurred losses in Fiscals 2017, 2016 and 2015.
16) Other risk factors (Internal and external) can be viewed in the red hearing prospectus.
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Recommendation / Investment strategy – Mahindra Logistics IPO
1) On the upper price band of Rs 429 and on consolidated restated FY17 EPS of Rs 6.7, P/E ratio works out to 64x. Even based on last 3 years restated consolidated EPS of Rs 6.24, P/E ratio works out to 68x. Similarly based on standalone restated FY17 EPS the P/E ratio works out to 65x and 3 years restated EPS, the P/E ratio works out to be 68x. Means, company is asking higher price band of Rs 429 in the P/E ratio of 64x to 68x. There is no listed peers to check whether the issue price is highly priced or under priced. However, the asking price at 64x to 68x is very very high (companies are generally asking for P/E ratio of below 40).
2) Company revenues grew at 17% CAGR in the last 3 years. However, it earns thin margins of 1.7% to 2.1% only. The asking price is very high at P/E of 64x to 68X. I would personally like to avoid such high priced IPOs. If such IPOs are available at discounted price, I may consider to invest in this IPO in future. As of now, I would avoid this IPO.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, What is your view on this high priced IPO? Do you still feel one would get listing gains?
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Mahindra Logistics IPO – Should you invest