Mahindra Logistics: ICICI Securities ups stock rating, revises target price

ICICI Securities has upgraded its rating for Mahindra Logistics Ltd, moving from 'Hold' to 'Add'. The revised target price for the company's stock has been adjusted to Rs 350 from Rs 360 previously. This adjustment is based on a new valuation methodology using EV/Ebitda rather than the P/E multiple. The company is now valued at seven times its FY27 EV/Ebitda.

Mahindra Logistics reported a strong Q4FY25 performance, surpassing ICICI Securities' Ebitda consensus estimates. The company's overall revenue grew by 8.2% year-on-year, with Supply Chain Management (SCM) revenue increasing by 8.7% and mobility revenue by 1.3%. The gross margin for SCM improved sequentially to 9.5% in Q4, while the mobility segment saw a slight decline to 10.1%.

Losses at Rivigo, a subsidiary of Mahindra Logistics, have narrowed significantly. Ebitda losses reduced to INR 116 million from INR 134 million in the previous quarter. The management remains optimistic about achieving Ebitda breakeven by the end of Q2FY26. Nevertheless, ICICI Securities has raised its Ebitda estimates by 5.6% for FY26 and 1% for FY27, while cutting PAT estimates due to higher depreciation and interest costs.

According to ICICI Securities, "Taking into account the FY25 numbers and with the expectation of improvement ahead, we raise our EBITDA estimates by 5.6% for FY26 and 1% for FY27. However, we cut PAT estimates given higher depreciation and interest cost." The improvement in Ebitda from Q3FY24's 3.7% to 5% in Q4FY25 is attributed to reduced losses at Rivigo and better performance across other verticals.

Rivigo's Ebitda loss for FY25 stood at Rs 511 million, a reduction from Rs 803 million the previous year. Management expects further improvements in contract logistics earnings, supported by better utilisation of white spaces and cost normalisation. However, achieving Ebitda breakeven by Q2FY26 could be challenging amid industry pressures and competitive intensity.

ICICI Securities commented, "We believe, achieving breakeven in Q2FY26 could be difficult for the company, as the industry is going through a tight phase; also, MLL faces heightened competitive intensity and pricing pressure." Despite these challenges, the company remains cautiously optimistic about future prospects.

The brokerage concluded, "We upgrade the stock to ADD from Hold. Our revised target price works out to Rs 350/share, based on the revised valuation methodology of EV/Ebitda; we value the stock at 7 times FY27E EV/Ebitda." This reflects the company's solid performance and strategic adjustments.

Investors will closely watch Mahindra Logistics' performance in the coming quarters, especially its progress towards achieving Ebitda breakeven and maintaining growth amid competitive pressures.