ET Intelligence Group: Mahindra Logistics plans to raise Rs 830 crore through an offer for sale. The proceeds of the issue would go to the private equity investor, Kedaara Capital. Unlike other listed logistics companies, Mahindra Logistics operates on an asset-light model, which ensures a better return on equity. However, its IPO valuation looks expensive compared with its peers. Given these factors, the share sale looks more suitable for investors with high risk appetite.

BUSINESS

Mahindra Logistics is a third-party logistics company of the Mahindra & Mahindra Group. Its asset-light model means that the company does not own trucks and warehouses required for its operations. It generates about 56% of its revenue by providing logistic services to the Mahindra Group companies, thus ensuring visibility and stability for a significant portion of the top-line.

The company's business can be divided broadly into two segments: supply chain management (SCM) and corporate transportation solutions. It derives 89% of the revenue from SCM. The company operates its SCM business through a pan-India network, which includes 24 offices and more than 350 clients.

Key customers include Volkswagen India, Vodafone India, Thermax, JSW Steel, Ashok Leyland, Siemens, Bosch, BMW India, 3M India, and Mercedes-Benz India.

FINANCIALS

In the past five years, the company's turnover increased at a compounded annual growth rate (CAGR) of about 15% to Rs 2,666 crore in FY17. Its net profit expanded at a CAGR of about 25% in the same period to Rs 60 crore in FY17. Profit excludes legal and professional fees.

VALUATION

On the valuation front, considering FY17 earnings, the IPO commands price-earnings (PE) multiple of 64.8 at the higher end of the price band. The average PE of listed peers based on FY17 earnings works out to 48.1.

The premium valuation can be attributed to Mahindra Logistics' superior return on equity (adjusted ex-surplus funds) of 33.8% in comparison with the average of 16.5% for listed entities.