Mahindra Logistics Ltd. - Ashika Logistics Ltd._IPO... · PDF fileCompany Name Mahindra...

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    IPO Note: Mahindra Logistics Ltd.

    Issue Snapshot

    Company Name Mahindra Logistics Ltd.

    Issue Opens October 31, 2017 to November 02, 2017

    Price Band Rs. 425 to Rs. 429

    Bid Lot 34 Equity Shares and in multiples thereof.

    The Offer Public issue of 19,332,346 Equity shares of Face value Rs. 10 each, (Comprising of Offer for Sale by

    Selling Shareholder).

    Issue Size Rs. 821.62 829.36 Crore

    IPO Process 100% Book Building

    Face Value Rs. 10.00

    Exchanges NSE & BSE

    BRLM Kotak Mahindra Capital Company Limited and Axis Capital Limited

    Registrar Link Intime India Private Limited

    Industry: Logistics Reco: Subscribe Date: October 30, 2017

    1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 6611 1700, Extn. - 704 www.ashikagroup.com

    Issue Break up

    Issue Size Allocation Equity Shares*

    QIB 50% 9,603,673

    HNI 15% 2,881,102

    RII 35% 6,722,571

    Total Public 100% 19,207,346

    Employee 125,000

    Total 19,332,346

    *Based on higher price band @ Rs. 429

    Company Highlights

    Mahindra Logistics Ltd. (MLL) - a Mahindra group company is one of Indias largest 3PL solutions providers in the Indian

    logistics industry which was estimated at Rs. 6.40 trillion in fiscal 2017 according to CRISIL report. MLLs competitive

    advantage is its asset-light business model pursuant to which assets necessary for operations such as vehicles and

    warehouses are owned or provided by a large network of business partners. Technology enabled, asset-light business

    model allows for scalability of services as well as the flexibility to develop and offer customized logistics solutions across a

    diverse set of industries. Company operates in two distinct business segments, Supply Chain Management (SCM) and

    corporate People Transport Solutions (PTS).

    Under SCM business it offers customized and end-to-end logistics solutions and services including transportation and

    distribution, warehousing, in-factory logistics and value added services to clients through a pan-India network comprising

    24 city offices and over 350 client and operating locations as at August 31, 2017. It has a large network of over 1,000

    business partners providing vehicles, warehouses and other assets and services for SCM business. As at August 31, 2017,

    MLL managed over 10.0 million square feet of warehousing space spread across pan-India network of multi-user

    warehouses, built-to-suit warehouses, stockyards, network hubs and cross-docks. As at August 31, 2017, it operated in-

    factory stores and line-feed at over 35 manufacturing locations. Such model of its operations enables company to serve over

    200 domestic and multinational companies operating in several industry verticals in India, including automotive,

    engineering, consumer goods, pharmaceuticals, e-commerce and bulk. Its client list includes Volkswagen India, Vodafone

    India, Thermax, JSW Steel, Ashok Leyland, Siemens, Bosch, BMW India, 3M India and Mercedes-Benz India.

    MLL provides technology-enabled PTS and services across India to over 100 domestic and multinational companies

    operating in the IT, ITeS, business process outsourcing, financial services, consulting and manufacturing industries.

    Objects of the Offer

    Offer for Sale

    The Company will not receive any proceeds of the Offer for Sale by the

    Selling Shareholder. The objects of the Offer are to achieve the benefits of

    listing the Equity Shares of the Company on the Stock Exchanges. The listing

    of the Equity Shares will enhance the Companys brand and provide liquidity

    to the existing Shareholders. (upto 9,666,173 Equity Shares by Mahindra &

    Mahindra, up to 9,271,180 Equity Shares by Normandy Holdings and up to

    394,993 Equity Shares by Kedaara Capital)

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    21008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 6611 1700, Extn. - 704 www.ashikagroup.com

    As at August 31, 2017, it operated PTS business in 12 cities and over 120 client and operating locations across India.

    Certain key clients in India for PTS business include Tech Mahindra, AXISCADES Engineering and ANZ Support Services.

    Companys subsidiary, 2X2 Logistics, provides logistics and transportation services to OEMs to carry finished automobiles

    from the manufacturing locations to stockyards or directly to the distributors through specially designed vehicles. MLLs

    other subsidiary, Lords, provides international freight forwarding services for exports and imports, customs brokerage

    operations, project cargo services and charters.

    An asset-light business model helps MLL to reduce capital expenditure requirements, mitigate the effects of operational

    risks relating to direct fuel costs, maintenance costs and depreciation in addition to reducing the effect of any risks

    emanating from changes in laws and regulations. This also enables it to deploy and utilize capital more efficiently, as

    reflected in companys adjusted ROE which is at 33.77% in FY17. Revenue from the SCM division, which contributed ~89%

    to total revenue in FY17, has grown at a CAGR of 17% over FY13-17 to ~Rs24bn with the larger share coming from Non-

    Mahindra group. The revenue from operations of SCM business, attributable to Non-Mahindra group clients, has increased

    at a CAGR of ~65% over FY15-17 to Rs9.5bn, reducing its dependence on the Mahindra group. The PTS business,

    comprising 10% of total revenue, has also seen a steady growth of 5% CAGR over FY13-17 to Rs2.9bn.

    View

    Mahindra Logistic ltd. (MLL), a part of Mahindra & Mahindra group, is one of the largest 3rd party logistic (3PL) solution

    providers in Indian logistic industry. MLL is an asset light, integrated, end to end and technology driven 3PL company with

    presence in two distinct business segments including Supply chain management (SCM) and Corporate people transport

    solutions (PTS). In SCM segment, it offers customized and end to end logistics solution & services, including transportation,

    distribution, warehousing, in-factory logistics and value-added services to various clients. In PTS business, MLL provides

    technology-enabled people transportation solutions & services across India to over 120 domestic as well as MNCs

    operating in IT, ITeS, BPO, Financial Services, Consulting and Manufacturing industries. Companys SCM division contributes

    ~89% of the total revenue, while PTS division contributes rest of the revenue. During FY13-17, revenue from SCM segment

    has increased at a CAGR of 17%, with larger share contributed by non-Mahindra GROUP. Revenue from Non-Mahindra

    group has increased at a CAGR of ~65% over FY15-17, thus gradually reducing its dependence on the Mahindra Group. In

    SCM segment, company offers services to various industries across India including automotive, engineering, consumer

    goods, pharmaceuticals, e-commerce and bulk. The company has a pan India network comprising 24 city offices and a large

    network of over 1,000 business partners, providing assets such as vehicles, warehouses and other services to ~350 clients.

    As per the management, in SCM segment, transportation : warehousing mix is at 86%:14% vs industry average at

    89%:11%. MLL intends to take warehousing share higher in bid to get GST related benefits. Further, as per business

    segment wise warehousing commands higher margins vs transportation. In SCM segment, MLL has 180 non M&M

    customers, with top 25 clients contributing 70% of non M&M business. Currently, MLL is managing over 10mn sqft of

    warehousing space spread across India under various heads such as multi-user warehouses, built-to-suit warehouses,

    stockyards, network hubs and cross-docks. Currently, MLL operated in-factory stores and line-feed at over 35

    manufacturing locations across the country. Further, MLL has recently set up a warehouse in Gurugram with an aggregate

    space of 191,000 sqft, which is well connected to several manufacturing and consumption clusters in India. It is also in the

    process of setting up additional large format and multi-user warehouses in certain strategic locations on a long-term lease

    basis. Company has two subsidiary named 2X2 logistics, which provides logistics and transportation services to OEMs

    and Lords, which provides international freight forwarding services for exports and imports.

    On financial front, MLL registered a revenue growth of 15% CAGR over FY13-17, while EBITDA grew at a CAGR of 20%

    during the same period. Net profitability growth during FY13-17, grew at a pace of 17% CAGR. At net level, company

    earned lower margin of 1.7% which is a drag on its financial performance. The issue is comprised of offer for sale from

    promoters and other strategic investors. India has high logistic cost as compared to developed and other emerging

    countries. Thus, there is immense potential in Indian logistic space given its long term growth opportunity. MLL is well

    positioned to gain an uptick in the logistic sector on the back of its strong parentage, asset light business model and large

    network of business partners. Further, logistic sector would be benefited most from the rollout of GST. On valuation front,

    at upper price band the issue is valued at P/E multiple 66x on FY17 EPS. Due to its a