ICRA reaffirms credit rating on fund-based, non-fund-based facilities of Mahindra Logistics

Mahindra Logistics Ltd (MLL) said on Friday that investment information firm ICRA has reaffirmed AA rating with a stable outlook on its long-term fund-based facilities and A1-plus on short-term non-fund-based facilities.

The rating reaffirmation takes into account the strong parentage of MLL as a subsidiary of Mahindra & Mahindra Ltd, MLL's established presence in the supply chain management (SCM) segment with M & M being a key customer, the increasing client diversification in its SCM business, and the respectable position it enjoys in the people logistics (people transport solutions or PTS) business.

Despite a 5.6 per cent year-on-year decline in revenues and 60 basis points dip in operating profit margin in H1 FY20 due to the slowdown in domestic automotive industry, the company's financial risk profile remains strong as characterised by its healthy return on capital employed of 28.2 per cent in FY19, capital structure of 0.1 times as on March 31 and debt coverage indicators and strong liquidity position.

 

ICRA said MLL continues to primarily follow an asset-light business model (asset-light model on a standalone basis while its subsidiary company 2X2 Logistics Pvt Ltd has an asset-heavy model which is positive, especially in a declining business environment.

MLL is positioned as a key intermediary in M & M's automotive and farm equipment business by providing end-to-end supply chain solutions.

The strong business linkage with the Mahindra Group, particularly M & M, in the SCM segment, provides MLL with the requisite experience, volume and a stable business avenue.

MLL's SCM business is at present primarily focussed on the automotive segment, in line with its large dependence on the parent entity for business.

However, said ICRA, while MLL has also developed a strong client base outside the group in other segments such as e-commerce, consumer and pharmaceutical verticals, its current dependence on the group remains high at 53 per cent of the total revenues in H1 FY20 (56 per cent in FY19).

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