Mahindra Logistics: 3 reasons why the stock is ICICI Direct’s ‘high conviction idea’

This comes after a 25 percent fall in the stock in the last 1 year. It lost over 23 percent in 2023 YTD, giving negative returns in 7 of the 10 months so far in the current calendar year. The stock was in the green in August (8.7 percent), June (6.3 percent), and April (4.4 percent). Meanwhile, it shed the most in February, down over 21 percent.

Although auto is expected to dominate the mix in the near to medium term, continued business addition in nonauto business and higher warehousing utilisation, along with cost-control measures are expected to keep MLL’s long-term ambitions intact, said the brokerage.

Mahindra Logistics is an end-to-end 3PL logistics solution provider, from performing milk runs to in-factory logistics, and warehousing to first-mile and last-mile logistics. It serves over 400 customers via its two business segments: supply chain management [(SCM), 96 percent of revenues] and enterprise mobility. Its revenues from Mahindra comprise 54 percent of SCM revenues while the rest is contributed by non-Mahindra.

Investment Rationale:

Integration with the acquired Rivigo B2B vertical: The company saw a volume drop in Q1 (25-30 percent), due to ongoing integration with the Rivigo vertical (integration began in Q4FY23 end). However, synergies such as transportation cost reduction and consolidation of facilities and infra are on track, while the management is actively clawing back lost volumes and expects Q3 to witness positive traction, said ICICI.

Festive season expected to normalise e-commerce sales: As per the Redseer report, the festive season has begun with a strong sales figure (up 16 percent). Although these are initial trends (higher premiumisation seen), it reinforces belief in normalisation of a positive Indian consumption story, noted the brokerage. E-commerce typically utilises higher warehousing components and hence is beneficial on both volumes and margins front, it added.

Asset light business model: The management has targeted a RoE of 18 percent by FY26 and expects mid-teen growth each year in the 3PL business and other businesses are also expected to follow suit and provide differentiated services. MLL range of services along with its integrated tailored services to clients, would help it to capture a larger wallet share of its customers, stated the brokerage.

Earnings estimates

For the quarter ended September 2023, Mahindra Logistics is expected to report net profit of ₹2.3 crore, down 13.5 percent year-on-year (YoY). Meanwhile, its net sales are expected to increase by 1.9 percent YoY and 4.5 percent QoQ to ₹1,351.4 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) is also likely to rise 4 percent YoY and 5.5 percent QoQ to ₹70.3 crore, said the brokerage.

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Updated: 18 Oct 2023, 04:22 PM IST