Analysts say Mahindra Logistics IPO valuations steep
Mumbai: Valuations of Mahindra Logistics Ltd initial public offering (IPO) that opened for subscription on Tuesday are relatively expensive, analysts said. The logistics arm of automobile maker Mahindra and Mahindra has set a share price range of Rs425-429 for the IPO that will close on 2 November. It aims to raise Rs829.36 crore through the share sale. At the upper price band of Rs 429, the company has been valued at 65 times FY17 earnings.
According to KR Choksey Shares and Securities Pvt. Ltd, valuations appear expensive but as management expects to receive a tax refund of approximately Rs54 crore, it is expected to result in positive cash flows. “These cash flows will be utilized in maintaining organic growth trajectory for the company, which could result in strong bottom line growth in the years to come. The company plans to support this growth by focusing on increasing business from non-Mahindra Group clients, leveraging the changing industry with the implementation of goods and service tax (GST) regime,” it added.
Angel Broking Pvt. Ltd said the company has reported a compounded annual growth rate (CAGR) of 15% and 25% in topline and adjusted bottom-line respectively, which is better than its players like VRL logistics and Transport Corporation of India. “In terms of returns, company has shown a better return profile with return on assets and return on invested capital compared to peer group average,” it said.
However, Angel Broking feels the weakness in the parent’s business and consolidation among mid-sized players in the sector are key risks.
"Owing to the diversification in various industries and growing non-Mahindra revenue, the company reported 14.5% CAGR in net sales over FY2013-17. On the margins front, it saw margins improving to 2.9% in FY2017 from 2.4% in FY2013. Its FY2017 EBITDA margins work out to be 3.6%, indicating a 125bps appreciation since FY2013. The company’s net profit CAGR during this period works out to be 17.2%, however adjusted net profit CAGR works out to be 25.2%,” Angel Broking said.
According to Religare Securities, the company’s asset light business model, diverse clientele base across the industries, strong parentage and healthy balance sheet would be key catalysts for future growth.
Part of Mahindra & Mahindra group, the company works as a third party logistics services provider. It was incorporated in 2007 and follows an asset light business model in which most assets are owned or provided by its business partners. The company operates in two business segments supply chain management (SCM) and corporate people transport solutions (PTS). Ahead of the share sale, the company has raised Rs247.2 crore via anchor investments.