Valuation and Recommendation
Over, FY15- FY17 the company sales has grown at a CAGR of 17.5% wheras the Non Mahindra revenue has grown at a CAGR of 45.9% during the same period and form 44.5% of revenue in FY17. Going forward, with the growth in the 3PL market size which is expected to grow at a CAGR of 19-21% over FY17-20, we believe Mahindra logistics, having a strong parentage support with presence in different verticals and asset light business model accompanied with a shift from unorganized to organized sector, will be able to capture the rising opportunity in the industry. Adjusted Operating margins of the company are at 3.6% in Q1FY18 mainly due to asset light model. Management expects margins to improve going ahead.
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The company has one time expense of consulting charges which is expected to come in till FY18. Adjusting to that PAT for FY17 stands at Rs 60 cr Operating cash flows of the company stands negative due to high TDS as compared to tax payable. Since the company has asset light business model, Adjusted ROE (excluding Surplus Funds) came in at 33.77% in FY17.On the valuation front, at the given upper price band of issue of Rs 429, Mahindra Logistics is offered at PE of 44.0x its Q1FY18 annualised Adj EPS of Rs 9.7 and EV / Adj Ebitda of 24.5x. We recommend subscribing to the issue.
About Nirmal Bang
Founded in 1986 by Nirmal Bang, the Nirmal Bang is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.
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