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Rivigo Deal To Help Scale Up Operations, Says Mahindra Logistics CEO

The combined business is expected to generate Rs 550-600 crore on a trailing 12-month basis, says Mahindra Logistics CEO.

<div class="paragraphs"><p>(Source: Company website)</p></div>
(Source: Company website)

It has been a strategic intent of Mahindra Logistics Ltd. to grow in the network services segments, including B2B express, and the recent acquisition is a step in that direction, according to Managing Director and CEO Rampraveen Swaminathan.

Mahindra Logistics acquired Rivigo Services Pvt.'s business-to-business express cargo service unit on a slump-sale basis for Rs 225 crore, as per the regulatory statement issued on Sep. 26.

"Our own internal business is growing at 30% CAGR over the last three years. This is roughly around Rs 180-200 crore annual run rate, and this acquisition will provide us significant leverage," Swaminathan told BQ Prime's Sajeet Manghat.

Benefits From The Acquisition

The Rivigo acquisition will help scale up operations and the combined business is expected to generate Rs 550-600 crore in revenue on a trailing 12-month basis, he said.

According to him, Mahindra Logistics will also benefit from Rivigo Services' technology suite and it will allow them to improve efficiency.

The acquisition will also enhance network coverage expansion as the company will be able to serve 19,000 pin codes across the country, he said.

"Both the companies' network is quite complementary in terms of the current layout, and we hope to get a lot of acceleration there."

Across both the businesses, there is a strong customer base and Swaminathan expects cross-segment synergies with customers, he said.

Mahindra Logistics is buying the organisation's network with customer contracts, along with the technology and the brand, he said.

"In terms of margins, Rivigo did lose money in the last 12  months on B2B business. (But) Contribution margins or unit margins of the business are positive and quite favourable. The business has a very strong above median yield profile," Swaminathan said.

Combining the businesses will yield benefits in terms of scalability and overall tonnage will rise by 40% on a monthly basis, he said.

Swaminathan expects the business to be Ebitda-positive and EPS-accretive over the next four quarters and sees a positive long-term margin profile.

"This first 12 months' focus is ensuring customer delivery and service remains exceptional, and we turn around to be EPS-accretive over the next 12 months," he said.

Mahindra Logistics-Rivigo Synergy

Apart from Rivigo's tech platform being better than that of Mahindra Logistics, the broader synergy between the companies will benefit in three areas:

  • Customer Base: Mahindra Logistics expects to get higher volume growth and reach out to more pin codes.

  • Transportation Cost: The combined volume of the two companies will enable better load across the network.

  • Footprint Optimization: Mahindra Logistics has 32 hubs across the country, while Rivigo has 250 branches and hub processing centers, said Swaminathan.

No Change In Capex Plans

Swaminathan said the acquisition will not change its capex plans as there is no fundamental shift in capital direction.

"As this will be an all-cash acquisition, Mahindra will fund this with internal accruals and debt," said Swaminathan.

Mahindra Logistics' balance sheet is quite strong and not very leveraged, and therefore, they are comfortable funding it without raising further funds through the equity route, he said.

"Our asset turnover ratio is fairly high," he said.

View On National Logistics Policy

Speaking on the new National Logistics Policy, he said, "You can't make in India, ...if you can't move in India".

According to him, the National Logistics Policy will impact certain key areas of the logistics industry:

  • The first is synchronized infrastructure development.

  • Second is the unification across different forms of logistics using digitisation. This will allow elimination of paper-work and redundant processes and will be a key efficiency measure for the industry.

  • Third is the broader shift to multi-modal logistics. India needs this shift to move away from "road surface" to a more balanced profile. It will help in terms of reducing logistics costs as well.

  • The National Logistics Policy has an intent to formalise the logistics industry.

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