Motilal Oswal's research report on Mahindra Logistics
MLL is transitioning its business model from a pure 3PL player to a more integrated player with focus on network solutions— freight forward, B2B express, etc. While this would need MLL to invest aggressively, we feel this may hurt the margin trajectory in the near to medium term. Furthermore, the competitive landscape has intensified significantly in the 3PL space, making margin expansion more challenging. With ~75% of MLL’s business being lowmargin transportation, the overall margin expansion now may be gradual. Recent acquisition of Rivigo’s B2B business could negatively impact margins as the business is currently loss making at EBITDA level. Though MLL is confident of turning it breakeven by 1Q FY24, we believe it could be challenging with the presence of established players in that segment. In the medium term, MLL intends to increase the scale of network services and achieve faster turnaround of recent acquisitions. It remains focused on improving the revenue mix by increased share of Non-M&M revenues, warehousing revenues, and valueadded services. The company is looking to focus on cost optimization and improve the efficiency and integration of mobility business solutions.
We expect MLL to clock a revenue/EBITDA CAGR of ~23%/31% over FY22–25E. We believe that despite the increasing scale of operations, margin improvement could be negligible over FY22-25 with the addition of some loss-making businesses and competition in the 3PL space. We reiterate our Neutral rating, with a TP of INR510 (35x FY24E EPS).