Mahindra Logistics IPO in progress: Should you subscribe?

Mahindra and Mahindra's (M&M) subsidiary Mahindra Logistics initial public offer (IPO) opened today. On Monday, the firm raised a little over Rs 247 crore from anchor investors. The company's IPO committee has finalised allocation of 57,62,203 equity shares to 15 anchor investors at Rs 429 apiece, also the upper price band for the offer, Mahindra Logistics said. At this price, the total amount works out to be Rs 247.2 crore.  

The IPO of Mahindra Logistics will remain open for public subscription till November 2. The company has fixed a price band of Rs 425-429 per share. At the upper end of the price band, the public issue is expected to fetch Rs 829.35 crore.

Mahindra Logistics' IPO comprises sale of 1,93,32,346 shares, including offloading of 96,66,173 shares -- amounting to 13.74 per cent stake -- by parent firm Mahindra and Mahindra.  Here's what brokerages said about the prospects of the IPO.

Choice Broking: Subscribe

Choice Broking has given a subscribe rating to the logistics firm's IPO. "On valuation front, MLL is demanding a P/E valuation of 66.9x to its FY17 EPS of Rs. 6.4. However, considering the adjuste PAT, the P/E comes out to be 50.8x (to its FY17 adjusted EPS of Rs. 8.4), which is in-line with the peer average of 46.2x. Moreover, due to its asset light business model, the FY17 asset turnover is at 46.1x, which is far better as compared to peer average of 3.3x," said its research report.

Angel Broking: Subscribe

Angel Broking has also given a subscribe rating to the issue. "At the upper end of the price band ( Rs 425- Rs 429), the issue is priced at 66.2x and 50.8x of its reported and adjusted FY2017 earnings. 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 adjusted  bottom-line respectively, which is better than its players i.e. VRL logistics and Transport Corporation of India. In terms of returns, company has shown a better return profile (ROE & ROIC of 17.3% and 40% v/s. peer group avg. - 13% & 14% respectively). Based on its growth story, diversification strategy, strong parent repute and post GST attractiveness of the logistics sector, we assign Subscribe rating to the issue," said the brokerage house in its IPO note.

AUM Capital: Subscribe

AUM Capital has assigned a subscribe rating to the offer.

"The Indian logistics industry is expected to grow and Mahindra Logistics Ltd, an arm of automobile giant Mahindra and Mahindra Ltd will be benefitted from these rising opportunities. MLL's focus on enhancements in technology, leveraging on the changing logistics industry dynamics particularly with the implementation of GST regime and exploration in new business opportunities in new industry verticals shows bright prospects in the future," said its analysts in the research note on MLL IPO note.

KRChoksey: Subscribe

KRChoksey has issued subscribe rating to the IPO. "In terms of valuation, on the upper price band of INR 429, the company has been valued at 65x on FY17 earnings as against 71x for Blue Dart Express, 34.2x for Gati Ltd and 54x for TCI Express. We believe, valuations look expensive, however, the management expects MLL to receive a tax refund of approximately Rs 54 crore, which will result in positive cash flows in the coming period. These cash flows will be utilised in maintaining organic growth trajectory for the company, which could result in strong bottom line growth in the years to come. The company plans to support this growth by focusing on increasing business from Non-Mahindra Group clients, leveraging the changing industry with the implementation of GST regime with greater focus on warehousing, continuing focus on technology enhancements and diversifying into other industry verticals," said the brokerage house.