Mahindra Logistics IPO opens today: Should you invest?
Mahindra & Mahindra subsidiary Mahindra Logistics (MLL), which will open its initial public offering on October 31, with a price band of Rs 425-429 per share, will be the first logistics firm to hit the market after the rollout of GST. The offer will close for subscription on November 2, 2017.
The issue comprises sale of 1,93,32,346 shares, including offloading of 96,66,173 shares -- amounting to 13.74% stake -- by the parent firm Mahindra and Mahindra. Normandy Holdings would sell 92,71,180 shares, while Kedaara Capital would offload 3,94,993 scrips. Normandy Holdings is a 100% subsidiary of Kedaara Capital.
The minimum bid lot for the offer is 34 equity shares and in multiples of 34 shares thereafter. The book running lead managers to the issue are Kotak Mahindra Capital Company and Axis Capital.
According to the brokerage, at the higher end of the price band of Rs 429, the issue is priced at P/E of 66.9x (post dilution) on FY17 basis, which appears to be expensive given the low financial performance (FY15-17 - revenue and PAT CAGR of 18% and 8%, respectively, with negative operating cash flows in the last 2 years).
“Even if money raised at such valuations was flowing into the company, it would have ultimately belonged to shareholders. But in this case 100% of the money raised is going to the selling shareholders and not into the company," the brokerage added.
The issue looks expensive at the given valuation and clubbing that with the lackluster performance of other M&M group companies it becomes difficult to logically recommend subscribing to the issue, it said.
At the given Rs 429, the issue is priced at 66.2x and 50.8x of its reported and adjusted FY2017 earnings respectively. But, due to its asset light model, there is no exact comparable peer.
However, the thumb rule for any investment is growth and returns. MLL has exhibited CAGR of 15% and 25% in top-line and adj. bottom-line respectively, which is better than its players i.e. VRL logistics and Transport Corporation of India.
Based on its growth story, diversification strategy, strong parent repute and post GST attractiveness of the logistics sector, the brokerage assigned subscribe rating to the issue.
The brokerage suggests that since MLL operates its business primarily on the basis of an “asset-light" business model, it enables it to offer a variety of flexible, scalable, solutions and services based on its client’s requirements and handle complexities that are unique to the Indian logistics industry.
This business model also allows MLL to manage any fluctuations in demand more efficiently and minimize any adverse effects resulting from cyclical movements.
However, the concern remains that the company depends significantly on clients operating in the automotive industry in India As a result of its dependence on these clients, any loss of business from, or any significant reduction in the volume of business with, any of these clients, if not replaced, could materially and adversely affect the business, financial condition and results of operations.