Mahindra Logistics Ltd: IPO Note

Report By: Apeksha Shetty

The global logistics market currently generates over USD 8 trillion annually and represents around 11% of global GDP. The size of Indian Logistic Industry is estimated to be USD 260bn and it is growing approximately at a CAGR of 14% over the last 5 years. The sector is evolving from mere transportation services to fully integrated service providers.

Mahindra Logistics is will be the first logistics firm to hit the market after GST rollout and it will be the first public offering from M&M Group after a decade. Mahindra Logistics’ IPO comes on the heels of highly successful logistics company IPOs seen in recent years. The brief details of the IPO are presented below:

Offer Details

Issue Size: 19,332,346 Equity Shares (around Rs 829.36 Cr.)

Opening Issue Date:  Oct 31, 2017

Closing Issue Date: Nov 2, 2017

Issue Price Range: Rs. 425 to Rs. 429

Eligible employees of the company would get a discount of Rs. 42 per share.

Lot Size: 34 equity shares

Face Value: Rs.10 per share

Merchant Banker: Kotak Mahindra Capital and Axis Capital

Industry Overview

Salient trends in the Indian logistics industry

  • According to Press Information Bureau (“PIB”), as at May 2017, India’s logistics cost as a percentage of GDP is 13-14%. The Indian logistics industry comprising segments such as road freight, rail freight, coastal freight, warehousing, cold chain and container freight stations and inland container depots (“CFS/ ICD”) is estimated at Rs.6.4 trillion in Fiscal 2017. This is expected to grow at a CAGR of approximately 13.0% to Rs.9.2 trillion by Fiscal 2020.









2) The Indian Government’s increased focus on infrastructure with estimated investment of approximately Rs. 10.3 trillion in roads (national highways, state roads and rural roads) between Fiscals 2018 and 2022.

3) Integrated network development will promote use of multi-modal transportation that would make transportaion more cost efficient.

4) The GoI implemented a centralized GST in July 2017, to replace the existing tax regime (excise, service and value-added taxes). The implementation of GST is important for growth in road freight, because tax efficiency was a company’s primary concern while setting up its distribution network, instead of logistics costs or customer service.

5) A 3PL company as is end-to-end supply chain management provider who is able to provide supply chain design and consulting, access to multi-modal transportation as well as infrastructure services such as warehousing, cold storage, CFS/ICD among others, and relevant value added services including, repackaging, reverse logistics among others.

In contrast, 1PL logistics services as logistics services which are carried out in-house by a company, while a 2PL company is defined as a company which specializes in providing either transport and/or warehousing services to companies. 1PL logistics services and 2PL companies offer limited or no value-added services.


3PL Market Size to grow swiftly



It is anticipated that sectors such as automobiles, e-commerce, consumer goods, organized retail and engineering are expected to have high 3PL growth potential. In the area of automobiles, despite the current higher share, especially in in-bound logistics, the 3PL market still has a sizeable opportunity to increase its share in outbound and in-factory logistics. In the area of e-commerce and organized retail, the strong growth prospects of the end-user industries represent a significant opportunity for 3PL service providers.

6) PTS industry to reach a market size of Rs. 85-95 billion in Fiscal 2020 and Freight forwarding market to increase at a CAGR of 8-9%.

Company Overview

Mahindra Logistics Ltd. is one of India’s largest 3PL solutions providers in the Indian logistics industry which was estimated at Rs. 6.40 trillion in Fiscal 2017. The company believes that their competitive advantage is the company “asset-light” business model pursuant to which assets necessary for the company operations such as vehicles and warehouses are owned or provided by a large network of business partners. The company technology enabled, “asset-light” business model allows for scalability of services as well as the flexibility to develop and offer customized logistics solutions across a diverse set of industries.

The company operates in two distinct business segments, SCM and corporate PTS:

The companies SCM business:

The Company offers customized and end-to-end logistics solutions and services including transportation and distribution, warehousing, in-factory logistics and value added services to the clients.

The company operate the SCM business through a pan-India network comprising 24 city offices and over 350 client and operating locations as at May 31, 2017. The company has a large network of over 1,000 business partners providing vehicles, warehouses and the other assets and services for the companies SCM business. The company has managed over 10.0 million square feet of warehousing space spread across the company’s pan-India network of multi-user warehouses, built-to-suit warehouses, stockyards, network hubs and cross-docks.

As at May 31, 2017, the company operated in-factory stores and line-feed at over 35 manufacturing locations. The companies “asset-light” business model along with the companies solutions design capabilities enables them to serve over 200 domestic and multinational companies operating in several industry verticals in India, including automobile, engineering, consumer goods, pharmaceuticals, e-commerce and bulk.

Certain key clients for the companies SCM business include Volkswagen India, Vodafone India, Thermax, JSW Steel, Ashok Leyland, Siemens, Bosch, BMW India, 3M India, and Mercedes-Benz India.

The companies PTS business:

The Company provide technology-enabled people transportation solutions and services across India to over 100 domestic and multinational companies operating in the IT, ITeS, business process outsourcing, financial services, consulting and manufacturing industries. The company offer the companies services through a fleet of vehicles provided by a large network of over 500 business partners.

As at May 31, 2017, the company operated the companies PTS business in 12 cities and over 120 client and operating locations across India.

Certain key clients in India for the companies PTS business include Tech Mahindra, AXISCADES Engineering Technologies and ANZ Support Services India.

Object of Offer

  • To achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the Offer for Sale.
  • Further, the Company expects that listing of the Equity Shares will enhance the visibility and brand image and provide liquidity to our Shareholders.

Note: The company will not receive any proceeds from the Offer for Sale.

Competitive Strength

  • An “asset-light” business model which allows flexibility and scalability in operations and high capital efficiency


  • Customized, technology driven logistics solutions


  • Integrated, end-to-end logistics services and solutions


  • The Mahindra brand and support from the Mahindra Group


  • Presence across diverse industry verticals with long-standing client relationships

Business strategy

  • Continue to grow share of the company’s business from non-Mahindra Group clients.


  • Focus on large revenue clients by providing integrated end-to-end solutions and continue to provide additional services to existing clients.


  • Continue to diversify the company’s revenues from industry verticals such as consumer, pharmaceuticals, e-commerce and bulk.


  • Continue to focus on enhancements in technology.


  • Leveraging on the changing logistics industry dynamics, particularly with implementation of the GST regime.


  • Continue to establish new multi-user warehouses.


  • Continue to explore new business opportunities in new industry verticals and business segments

Risk Factors


  • The company depends on a limited number of clients, which exposes it to a high risk of client concentration.
  • Fluctuations in the performance of the industries in which the company’s clients operate may result in a loss of clients, a decrease in the volume.
  • In Fiscals 2017, 2016 and 2015, the company’s top 20 non-Mahindra Group clients contributed 70.65%, 63.11% and 56.46%, respectively, to the total revenue from operations that we derived from non-Mahindra Group clients.


  • The company’s business and operations depend significantly on the parent and Promoter, Mahindra & Mahindra Limited and the other Mahindra Group entities.
  • Entities within the Mahindra Group together constituted largest clients and contributed 53.96%, 63.24% and 70.14% to the company’s total revenue from operations in Fiscals 2017, 2016 and 2015, respectively.


  • Any disruptions which affect the company’s ability to utilize the transportation network in an uninterrupted manner could result in delays, additional costs or a loss of reputation or profitability.
  • With a significant portion of the goods in India being transported by road, the company’s business operations are dependent on the road network in India.
  • Certain factors which could adversely affect road transport and result in delays, additional costs or unreliability include bad weather conditions, natural calamities, time-consuming and complex inter-state travel, political unrest, regional disturbances, fatigue or improper conduct of drivers, accidents and third party negligence.


  • We depend on skilled personnel and if we are unable to recruit and retain skilled personnel, the company’s ability to operate or grow the business could be adversely affected.
  • The company’s total employees grew by 17.73%, 20.58% and 7.10%, respectively; in Fiscals 2017, 2016 and 2015 and the attrition rate was 14.23%, 10.64% and 12.51%, respectively.


  • The company depends significantly on clients in the automotive industry and are highly dependent on the performance of the automotive industry. A loss of, or a significant decrease in business from clients in the automotive industry could adversely affect the company’s business and profitability.

The companies’ clients operating in the automotive industry contributed 60.84%, 67.94% and 73.97% to the total revenue from operations in Fiscals 2017, 2016 and 2015, respectively.

  • The company is involved in legal cases which may affect the profitability of the company:

Financial Analysis

  • Debt to Equity Ratio

  • Total Income

Breakup of Total Income:

  • EBITDA and PAT Margin

  • PAT

  • EPS

  • Price to Earning

The total Income and PAT has grown at a CAGR of 14.86% and 16.92% for the last five financial years, respectively. The company has negligible amount of Debt. The margins of the company are in the range of 1.5-3.5% and there is no significant growth in the margins.

Considering the Price to Book Value and Price to Earning Ratio the issue seems to be overpriced. Also, there is no consistency in the profits of the company.

Authors Note

As industry’s growth is concern then it has linkage with the infrastructure sector and it is estimated that the government will be investing Rs. 10.3 trillion in roads between FY18-22. Secondly, the GoI is promoting schemes such as Sagarmala and inland water ways which will works towards the development of Logistic Industry.

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 company enjoys healthy return ratios (ROCE: 34.21% in FY17) in comparison with the average of 16.5% for listed entities.

Even if the company would raise the money with fresh issue at such high valuations then it will flow into the company for business operation or expansion however it’s a 100 per cent OFS. We also observed negative operating cash flows in the last 2 years. Therefore we suggest to the investors to avoid this IPO at such high valuation.