VRL Logistics Ltd: Fast mover – Subscribe

VRL Logistics Ltd is India’s leading surface logistics and parcel delivery company with one of the largest fleet size of ~4000 goods transport vehicle.

April 15, 2015 3:44 IST | India Infoline Research Team
Issue opens 15-Apr-15, Issue closes 17-Apr-15, Price band (Rs) 195-205
VRL Logistics Ltd is India’s leading surface logistics and parcel delivery company with one of the largest fleet size of ~4000 goods transport vehicle. VRL operates on a pan-India level through its 624 branches of which 48 act as strategic transshipment hubs. Integrated hub and spoke model has led to improved operational efficiency as it enables VRL to transport parcels of various sizes and provides multiple points of access to its clients for booking and delivery of goods. VRL also owns and operates 455 passenger buses across central and south India. Freight logistics contributes ~76% of total revenues while ~21% comes from passenger transportation segment. Wind power generation forms a small part of the company’s overall business contributing ~2% towards total revenues.
The issue: This is an offer for sale cum fresh issue. Offer for sale is made by PE investor NSR-PE Mauritius LLC who will be offering 1.45cr equity shares along with the promoters who will be selling 0.25crs equity shares. The company plans to raise Rs. 117crs by issuing ~0.57cr fresh equity shares.
Objects of the issue: Of the Rs. 117 cr raised, Rs. 67.4 cr will be used for purchasing new trucks, Rs. 28cr will be used to repay debt and the remaining amount will be used for general corporate purposes.
At the upper end of Rs195-205 price range, the stock is valued at 14.7x FY16E EPS of Rs13.9. Peers like Gati and Transport Corporation of India Trade in the range of 18x-25x. We note that apart from plain vanilla surface logistics, these peers also provide niche services like express delivery, ecommerce delivery and supply chain management and therefore trade at higher multiples. Nevertheless, with the improving macroeconomic environment, contribution of freight transportation via road is poised to increase and VRL with its largest fleet size, superior track record, strong brand name, diverse client base, and vast management experience is all set to benefit from the opportunities provide by the sector. Recommend investors to Subscribe.
Financial summary
Y/e 31 Mar (Rs cr) FY14 FY15E FY16E FY17E
Revenues 1,494 1,679 1,924 2,229
yoy growth (%) 12.7 12.4 14.5 15.9
Operating profit 207 269 324 382
OPM (%) 13.8 16.0 16.8 17.1
Pre-exceptional PAT 51 93 127 166
Reported PAT 57 93 127 166
yoy growth (%) 25.1 62.9 36.5 30.7
EPS (Rs) 5.9 10.9 13.9 18.2
P/E (x) 34.7 18.8 14.7 11.3
P/BV (x) 5.7 4.9 3.5 3.1
EV/EBITDA (x) 10.2 7.5 6.0 4.9
Debt/Equity (x) 1.2 0.9 0.6 0.5
RoE (%) 20.8 28.0 28.4 29.2
RoCE (%) 17.1 24.2 27.0 29.6
Source: RHP, India Infoline Research
Note: per share ratios based on diluted equity, price assumed at Rs205 for EV calculations
Strong growth track record
VRL’s revenue and PAT CAGR over FY10-14 stood at ~20% and ~19% respectively in spite of a challenging economic environment. With the improving economic scenario and strengthening business sentiments, freight volumes are expected to witness strong pickup. VRL’s strength lies in its long standing relations with Ashok Leyland that has helped it in procuring trucks and spares parts at 10-30% cheaper than the market rates. Also, due to its sheer size, VRL has managed to negotiate favorable diesel price from IOC and hence reduced its operating costs as fuel forms one third of the total operating expenses. We expect VRL to register strong earnings CAGR of ~43% over FY14-17E led by 330 bps OPM expansion. This will result in strong free cash flows and help in bringing down the D/E ratio below 1x.

Key risks
Key risks include inability to fully pass on any increase in toll charges, fragmented nature of the industry with the presence of large number of truck operators from the unorganized segment offering services at lower rates and delay in economic revival resulting in slower off take in industrial activity.

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