Sell Mahindra Logistics; target of Rs 226: YES Securities

YES Securities' research report on Mahindra Logistics

Mahindra logistics (MLL) reported topline of Rs4.1 bn (down 54.3% yoy). The performance was impacted by nationwide lockdown due to the Covid-19 pandemic as significant reduction in industrial activity, and weak business sentiment reduced logistics requirement. Despite higher contribution from the better margin warehousing segment, gross margin remained stagnant at ~9.7% owing to subdued utilizations. Also, lower revenue and higher employee expense translated into loss at operating level (Rs.22mn). While Supply Chain Management (SCM) segment de-grew ~51% yoy, a larger hit was seen in the Enterprise Mobility (EM) division wherein revenue declined ~82% yoy. The performance in the EM segment was hit hard by lesser requirement of transportation with large part of clients’ employees continuing to work from home. We expect revenues to be remain under pressure in FY21 with continued weakness in the auto segment. Also, MLL’s EM division is likely to remain impacted, with IT and Financial sector employees largely Working from Home (WFH).

Outlook

On the margin front, despite increasing contribution from warehousing, we expect operating margin to moderate to ~4.4% during FY22E with higher operating costs. We largely maintain our estimates and retain our SELL rating on the stock with a Target Price of Rs.226 (28x FY22E P/E). Weak business sentiments and delayed recoveries to impact MLL’s performance in the near to medium term.

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