Rationale

The reaffirmation of ratings reflects Mahindra Logistics Limited's (MLL) strong financial profile characterised by its low leverage and strong debt coverage indicators, as well as its position as a key intermediary in Mahindra & Mahindra Limited's (M&M, rated [ICRA]AAA (Stable) and [ICRA]A1+) 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 supply chain management (SCM) segment, provides MLL with the requisite experience, volume and a stable business avenue. MLL's SCM business has a large contribution from the automotive segment, in line with its large share of business from the parent entity. However, MLL has diversified significantly beyond the automotive business by developing a strong client base outside the Group in other segments such as e-commerce, fast moving consumer goods (FMCG) and pharmaceutical verticals. MLL, being a subsidiary of M&M, also enjoys access to the capital markets and healthy relationships with banks, which adds to its financial flexibility. MLL's Enterprise Mobility (EM) business witnessed a significant decline in revenues of 5% in FY2020 and 68% in FY2021, due to Covid-19-led lockdowns and work-from-home policies. However, ICRA notes that the business reported 21% growth in revenues in FY2022 due to back-to-office norms and resumption of travel. With the acquisition of Meru Travel Solutions Private Limited (MTSPL), Meru Mobility Tech Private Limited (MMTPL), V-Link Automotive Services Private Limited (VASPL), and V-Link Fleet Solutions Private Limited (VFSPL) in May 2022, ICRA expects the segment to benefit from growth in revenues and cross synergies among them. MLL continues to primarily follow an asset-light business model, which is a positive, especially in a declining business environment. MLL has a strong financial risk profile, reflected in its gearing of 0.7 times (including lease liabilities) and strong liquidity position with sizeable cash, bank balance and liquid investments aggregating to Rs. 248.2 crore as on March 31, 2022. Moreover, MLL had sanctioned working capital facilities of Rs. 210 crore as on March 31, 2022 at standalone level which was unutilised. This sanctioned limit was further enhanced to Rs. 260 crore as on June 30, 2022. Excluding lease liability, MLL is a net debt-free company. The rating strengths are partially offset by the inherent cyclicality in the automotive industry towards which it has high exposure. MLL's automotive segment's revenues witnessed 20% growth in FY2022 after de-growth of 16% in FY2020 and 6% in FY2021, due to the overall slowdown in the domestic automotive industry, coupled with the negative impact of the Covid19 pandemic. MLL's business also remains vulnerable to stiff competition from many unorganised players and technology driven start-ups.

The Stable outlook reflects ICRA's expectation that MLL will continue to enjoy strong financial flexibility as a part of the Mahindra Group and its strong linkages with the Group. ICRA believes that MLL will maintain its current comfortable capital structure and liquidity profile.