Focus On Turning B2B Acquisition Profitable, Buy This Logistics Stock For Target Price Rs 600

CMP, 52-week low & high, and Returns over the years

The Current Market Price (CMP) of MLL stood at Rs 519.85 apiece on NSE. Its 52 week low is Rs 391.10 and the 52 week high is Rs 814, respectively. 

It has given 2.08% negative returns in a week, whereas, in a month it gave 8.27% positive returns on investments. The stock over the past 1 year, has given 29.03% negative returns, whereas, in the past 3 years it gave a massive 44.81% positive return. 

Attractive valuation for the acquisition

MLL entered into a business transfer agreement with Rivigo Services and its promoter to acquire its B2B express business for a lump sum consideration of Rs. 225 crore, which is just 0.6x of Rivigo's B2B express revenue for FY2022. We believe the fairly low valuation is on account of Rivigo's sustained losses over the past few years, aided by Covid-led impact along with its inability to turn around despite offloading truck fleet (reduction of truck fleet size from 3,000 to 800-900). The company had been looking for prospective buyers as per media reports for quite some time. 

Focus on turning B2B acquisition profitable

MLL would be focusing on making the acquisition profitable through overhead reductions, operating cost optimisation, and margin improvements through scaling up. Rivigo's industry-leading technology and high realisation in the B2B express (Rs. 12-13/kg as against industry's average of Rs. 9-10/kg) would aid in achieving profitability. Other key benefits from the acquisition are Rivigo's Pan-India network of operations (over 19,000 pincodes) and 250+ processing centres and branches, spanning an area of more than 1.5 million sq. ft. 

In tune to scale the network services business 3x by FY2026

MLL's revenue target of Rs. 10,000 crore by FY2026, includes 3x growth in the network services business, revival in the enterprise mobility business apart from doubling of its core third-party logistics (3PL) revenue. The Rivigo's B2B express acquisition is in sync with its strategy to scale up the B2B express business (little over Rs. 800 crore in FY2022) to Rs. 1,000 crore by FY2026. Additionally, restructuring of the enterprise mobility business under one entity would allow it to improve upon operational profitability due to currently common operating expense structure.

Sharekhan Retain Buy with an unchanged Price Target of Rs. 600

Sharekhan commenting on the valuation of the stock said, "Prima facie, we believe MLL has been able to acquire the B2B express business at attractive valuations, although the operating structure and net profitability of the acquired business is yet not disclosed. Currently, we have not factored in the acquired business' earnings in our estimates, awaiting clarity on financials and growth outlook of the acquired business. However, the acquisition is in-line with the company's strategy of expanding its network services business over the next five years. Further, restructuring of the enterprise mobility business is likely to aid in improving operational profitability. We believe the company continues to remain focused on the addition of warehousing capacities, scaling up network services business, and eyeing capabilities-based acquisitions in the logistics space. We remain optimistic about MLL's long-term growth potential. Hence, we retain our Buy rating on the stock with an unchanged price target (PT) to Rs. 600."

Key Risks - Weakness in the automobile industry's outlook is a key downside risk to our call.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.