Stock Analysis : Mahindra Logistics (MAHALOG).
Expected value of the stock = Rs 620 i.e. 34x P/E in next 8-10 months & Short Term target of Rs 500.
Overview of India’s Dynamic Logistics Industry:
India’s transportation and logistics sector plays a pivotal role in supporting the country’s projected rapid economic growth, with GDP expected to reach US$26 trillion by FY48.
The sector encompasses four primary modes of transportation: Road, Rail, Shipping, and Air.
Road transportation dominates freight movement in India, accounting for 66% of cargo volume (in ton-km), followed by Rail (31%), Shipping (3%), and Air (1%).
Supporting the cargo movement are various infrastructure facilities, including over 129 in-land container depots, 168 container freight stations, and approximately 300 million square feet of warehousing space.
The logistics sector in India handles a diverse range of over 10,000 commodities and employs approximately 22 million people.
The Indian logistics market is growing rapidly due to several key factors. Major infrastructure upgrades, like new freight corridors and better ports, are speeding up delivery times. Increased competition is pushing companies to improve their services. Government support through policies like GST and the National Logistics Policy is making the logistics environment more business-friendly. Additionally, new technologies such as IoT, AI, and blockchain are making operations more efficient and transparent. These drivers are boosting the growth of the Indian logistics sector.
India’s logistics sector is on the cusp of significant growth, driven by various contributing companies. In this discussion, we delve into the intricate details of Mahindra Logistics, a key player shaping this transformative landscape.
Financial Performance Overview:
On February 27, 2024, Mahindra Logistics stock gained 7.3%, outpacing the sector by ~8%. This marked the third consecutive day of upward momentum, with the stock trading above its moving averages, indicating positive market sentiment. Despite the market success, Mahindra Group reported a consolidated net loss after tax of Rs. 174 ($2.1 mn) for the quarter ending December 31.
Key factors contributing to this loss:
6% increase in total expenses, outweighing a 5% rise in revenue.
Intensive competition from both domestic and international players.
Losses in the express cargo business, Rivigo, which was acquired in 2022.
Lower volumes during the festive season, attributed to increased shutdowns in e-commerce and automotive OEMs.
Loss from its mainstay segment of supply chain management during the reported quarter.
Despite these losses Mahindra Logistics has exhibited great fundamental values, namely their “Customer First” approach build on trust, transparency, safety, and flexibility. Company’s foundation is built on key pillars of Employee engagement, Performance management, Talent nurturing, Leadership development.
Detailed financial statements
Strategic Initiatives:
Despite these challenges, Mahindra Logistics has remained focused on its strategic initiatives aimed at sustainable growth.
Restructuring efforts to optimize operational efficiency
Diversification strategies to mitigate risks, and
Investments in technology and innovation to enhance service quality.
Integral to Mahindra Logistics’ vision of expanding its presence across the country, is its warehousing footprint in West Bengal to 3.3 lakh sq. ft. Mahindra Logistics also services full truck load, part truck load and integrated services to nearly 2,000 pin codes in the region.
Mahindra Logistics’ financial performance over the past three years has exhibited volatility, with fluctuating net profits.
June 2020 quarter, the company reported a loss of Rs 16.64 crore, followed by a net profit of Rs 3.04 crore in the June 2021 quarter, and Rs 13.25 crore in the June 2022 quarter. However, in the June 2023 quarter, it incurred a loss of Rs 8.46 crore.
Despite this variability, the company’s operating profit has shown remarkable growth, rising from Rs 2.22 crore in the June 2020 quarter to Rs 66.63 crore in the June 2023 quarter, indicating strong operational performance.
Despite of concerns over achieving revenue targets in the mobility business, company’s aim for operating level break even in the express business by H1 FY 2025 and PAT break even by Q4 FY 2025.
Investors should still carefully evaluate Mahindra Logistics’ strategic initiatives and market conditions before making investment decisions.
Investor Perspective:
In spite of few short-term challenges, analysts maintain a positive outlook on Mahindra Logistics, emphasizing its growth potential its core 3PL business. Company’s focus on improving operational profitability and increasing share of solutions business in 3PL vertical is viewed favorably. Analysts recommend a buy rating on the stock, with a revised price target of Rs. 560, considering the transitioning growth opportunity and forward-looking valuation multiples.
Festive season sales were up 16%, reinforcing belief in Indian consumption story; higher premiumisation seen, benefiting e-commerce with higher warehousing components.
Volume drop in Q1 (25% to
–30%) due to ongoing integration with Rivigo vertical, which began in Q4 FY23, but management expects positive traction in Q3 2024.Asset-light business model with target RoE of over 15% in FY25, and 18% by FY26; mid-teen growth expected annually in 3PL business and other services like Last Mile and MESPL.
Wide range of services including
Personal Views:
Mahindra Logistics is actively adjusting its product mix to adapt to the heightened volatility in the business environment, which includes factors like partial lockdowns and an auto slowdown. Although these adjustments may initially have a negative impact on MLL’s performance in short to medium run, they are equipped to fire on long-term growth cylinders. By attracting new non-auto customers, MLL is diversifying its revenue streams and offering other value-added services like warehousing. This strategic shift positions the company to capitalize on future opportunities and mitigate risks associated with sector-specific challenges.
Competitions & Key Metrics Comparison:
3PL Supply Chain services growing 14% in Q4FY23 on YOY basis, full year growth of 7% driven by growth in automotive and engineering, consumer.
Freight forwarding and Express businesses continue to show improvements in volume on a sequential quarter basis. Express business continued with the positive trend on network and cost optimization.
Strong quarter of order intake in Mobility and across the 3PL supply chain business, driven by growth in FMCG, Engineering and Auto.
Warehouse space under management stood at 20 mn sq. ft. in the 3PL business. Current expansions in Chakan, Kolkata, Nasik, and Guwahati are on track.
During the year completed the 2nd tranche of share purchase in Whizzard/Zip Zap Logistics (a last mile delivery company) in Dec’23. MLL now owns 60% stake in the company. The acquisition will complement MLL’s existing last mile delivery business & Edel and will help drive deeper penetration.
Disclaimer: The views expressed herein are solely my personal opinions and are based on my independent research and analysis. I am not a registered SEBI advisor, and therefore, I do not provide recommendations to buy or sell securities. Individuals should conduct their own due diligence and seek advice from a registered financial advisor before making any investment decisions. Investing in securities carries inherent risks, and past performance is not indicative of future results.
Key Resources:
Q4-24 Presentation: https://mahindralogistics.com/tabs/cms/files/SEintimationEarningsPPTSigned.pdf
Q4-24 Conference Audio: https://mahindralogistics.com/tabs/cms/files/Audio%20Transcript%20Earnings%20Call%20%E2%80%93%20Q4FY24.mp3
Q4-24 Press Release: https://mahindralogistics.com/tabs/cms/files/Press-Release-Q4FY2024-results-Final-Signed.pdf
Latest News: https://economictimes.indiatimes.com/mahindra-logistics-ltd/stocksupdate/companyid-23241.cms
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