Mahindra Logistics shares close flat on stock market debut

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Mumbai: Shares of Mahindra Logistics Ltd made a tepid debut on stock markets on Friday. The logistics arm of automobile maker Mahindra and Mahindra Ltd (M&M) was listed on bourses at Rs432 per share, up 0.69% from its issue price of Rs429.

The shares closed 0.03% higher at Rs429.15 on BSE, while the Sensex rose 0.19% to close at 33,314.56 points. The stock fell as much as 3.6% to Rs416.55 intraday.

The company’s initial public offer (IPO), which was open for subscription from 31 October to 2 November, had a price band of Rs425-429 per share. The Rs829.36 crore IPO was subscribed 7.83 times. Ahead of the IPO, analysts had said that the issue was expensive at the upper price band of Rs429, the company has been valued at 65 times FY17 earnings.

According to KR Choksey Shares and Securities Pvt. Ltd, valuations appear expensive but as management expects to receive a tax refund of approximately Rs54 crore, it is expected to result in positive cash flows. “These cash flows will be utilized 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 goods and service tax (GST) regime,” it added.

Angel Broking Pvt. Ltd said that the company has reported a compounded annual growth rate (CAGR) of 15% and 25% in topline and adjusted bottom-line respectively, which is better than its players like VRL Logistics and Transport Corp. of India. “In terms of returns, company has shown a better return profile with return on assets and return on invested capital compared to peer group average,” it said.

However, Angel Broking also warned that the weakness in the parent’s business and consolidation among mid-sized players in the sector are key risks.

Part of Mahindra group, the company works as a third party logistics services provider. It was incorporated in 2007 and follows an asset light business model in which most assets are owned or provided by its business partners. The company operates in two business segments supply chain management and corporate people transport solutions.