VRL Logistics Ltd Management Discussions.



The measures adopted by the government in the last couple of years have significantly bolstered India’s medium-term outlook. The same is echoed by a change in India’s sovereign rating after a period of 14 years. The economy’s increasing alignment to policy changes and its ability to withstand temporary disruptions caused by GST implementation is expected to help it transition towards a new framework in the future. While the government’s recent commitment to inject sizeable capital into the banking sector could go a long way in addressing the ‘twin balance sheet’ issue (balance-sheet weakness in the banking and corporate sectors), improving farm incomes, as agriculture prices are likely recover from demonetisation and supply shocks, is likely to play a pivotal role in steering GDP growth levels to over 7.5 per cent in FY2019.

The next phase of growth for the Indian economy is expected to be driven by infrastructure development, investments, advancements in transport and logistics infrastructure, sustainable living, changing digital landscape and increased consumerism facilitated by higher incomes and expanding middle class base. The same augurs well for players like your Company.

In a major push to developing an integrated logistics framework in the country, including industrial parks, cold chains and warehousing facilities, the government in November had granted infrastructure status to the logistics sector, enabling the industry to access cheaper finances. The government also created the position of a special secretary in the commerce ministry to exclusively handle logistics. This can further fuel India’s merchandise exports which have been on a positive trajectory since August 2016 to January 2018, barring October 2017, when exports registered a 1.1 per cent dip. The prospects in India’s logistics sector can also be estimated from the fact that funding in logistics start-ups increased by 205 per cent in 2017. The ‘Sagarmala’ programme to facilitate port-led industrialization, and increased budgetary support to boost railways and highways infrastructure, could reshape the existing transport and logistics network in the country. Promotion of multi-modal transport hubs and inland waterways is also expected to help in developing the infrastructure. Further, recent developments such as the new metro rail policy, announcement of USD 108.6 billion spending on road network and according infrastructure status to the logistics sector, is expected to facilitate higher private investments.

Infrastructure development has been the focus for the government and has achieved significant government is currently focused on reducing the cost of logistics, provide multimodal and efficient transport, last-mile connectivity and improve existing supply chain infrastructure in the country. To achieve these objectives, the government outlined initiatives such as Sagarmala, set infrastructure augmentation targets in railways and roads and introduced various policy measures to simplify regulatory environment and attract private and foreign investments. To develop and modernise the road network in India, to improve connectivity, reduce cost of logistics and travel time. At present, the road network in India stands at about 3.3 million kilometre, with state and national highways comprising nearly 8 per cent of the network, district roads 12 per cent and rural roads 80 per cent. The government plans to expand the national highway road length to 2 million kilometre by the end of 2019.

The macroeconomic fundamentals are stronger (lower fiscal deficit and retail inflation)and a much clearer and definitive fiscal structure is being prepared for India’s future growth. India is on a much better footing than other emerging economies. India’s long-term growth potential stands undisputed and a host of reforms undertaken recently including GST, bankruptcy code, subsidy reforms backed by transparent allocation of natural resources, to pick a few, have high potential economy. With improved macroeconomic laid down a strong and firm fundamentals and a stronger fiscal . structure, the country is getting ready for future growth

In a nutshell, the nation has witnessed radical steps towards a giant leap into the future. Our expansive economic ecosystem is undergoing a paradigm shift. Reforms are being undertaken at all levels and efforts are being put in to ensure that the implementation of these reforms is seamless and is for the sustainable future of the nation. Feedback is being taken seriously from all facets of the society and efforts are being put in to ensure that the world’s largest democracy effectively caters to the demands of the majority. Renewed investor confidence and expectations of continued progress on economic and institutional reforms will further unleash India’s high growth potential.

GST implementation initially led to a nominal disruption in the pace of growth in the country but is expected to positively contribute to economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems and expanding the tax base. After the initial hiccups, dwindling tax revenues, hassles in filing returns the transition has now smoothened with tax collections increasing gradually and the same is expected to eliminate the cascading effect of taxes. With the implementation of GST, the logistics companies, which are currently forced to set up many small warehouses across multiple cities can set up just a few, big warehouses region wise and can follow the hub-and-spoke model for freight movement from the warehouses to the different manufacturing plants, wholesale outlets, retail outlets and the various POS. This growth is backed by the boom in the e-commerce sector and expansionary policies of the

FMCG firms as also the recent Government initiatives aimed at encouraging the manufacturing activity in the .

The government, while proposing the idea of incorporating E-way bill under GST, had the intention of creating an effective tool for tracking movement of goods and ensure various benefits to the industry.

Abolition of check-posts

Seamless movement of goods within a state and across different state borders

Boost to India’s logistics ecosystem resulting in lesser traffic on major transportation routes

Reduction in transportation costs and lead time by replacing physical check posts with mobile squads

This has increased the service geography of the logistics firms but they also have to meet the demands of quick delivery and tight service level agreements. The industry has moved from being just a service provider to the position which provides end to end supply chain solutions to their customers. Overall, the prospects of the Logistics and Warehousing industry in the coming years appear bright.

(Source: KPMG report)



VRL is a well established brand in the country when it comes to surface transportation and the industry leader in the parcel transportation space. It is also the leading name in the private bus operations industry and one of the biggest private sector operators in this space. With a track record of over four decades, VRL has increased its size and scale of operations and operates on a pan India basis. We maintain our stand that your Company also occupies the leadership position in the country for Less than Truck Load (LTL) movement of goods and it is only the absence of validated industry data that prevents us from acclaiming this fact. Apart from the movement of General Parcel, the surface transportation operations also cover other services such as Full Truck Load (FTL), Priority Cargo Services, Car carrying as also Air Cargo.

The two major advantages that your Company enjoys over its competition are its well established wide network of branches and franchisees and its owned fleet of commercial vehicles with dedicated in-house vehicle body designing and vehicle maintenance facilities to cater to the parcel transportation. The Company presently operates across 23 States and 4 Union Territories in India and its reach is unmatched for the offering of LTL goods transportation services.

Your Company is also one of the largest fleet owner of commercial vehicles in the Country, if not the largest, and the same enables the Company to set unparalleled standards in the movement of LTL cargo in India in terms of service levels and safety of consignments.

The policy at VRL is to own its vehicles for offering LTL services as also own significant infrastructure facilities comprising of warehouses and maintenance facilities. We also have a dedicated in-house IT setup which is a significant of your Company and the same has rendered a lot of control, cost savings and business flexibility over the years. The entire IT infrastructure of the Company is operated internally and the in-house developed ERP enables the Company to seamlessly operate on an online real time basis across all its business verticals as also integration with franchisees and select customers. Your Company also has built up capability to maintain its owned vehicle fleet internally and the cost savings arising out of economies of scale by way of tie-ups with fuel suppliers, vehicle manufacturers for supply of spare parts, tyres etc.as well as ongoing in-house R&D in this domain have enabled the Company to utilize its vehicles for a significantly longer term vis-a-vis the industry as also at significantly lesser maintenance costs.

Your Company also benefits from in-house research and development with a capability to try its findings and experiment with newer products and technologies on its owned vehicles. Several of its key findings have today been accepted and implemented even by vehicle manufacturers.

Your Company also has a very well diversified customer base. During FY 2017-18, the Company’s and the top 10 customers put together contributed only 1% and 5% of the revenues of the Goods Transport business respectively. This has ensured that the Company has no dependencies on any customers or product categories. Similarly, there are no geographical or product related dependencies for the business which better insulates your Company vis-a-vis competition.


The surface transport industry suffers from an acute driver shortage issue and the said problem also affects your Company. The management opines that this is the single most important factor that affects all the transporters across the country. Your Company is however relatively better placed in this regard. VRL offers best in the class salaries and emoluments including incentives to its drivers which help retention of this cadre. The Company also has enlisted its drivers on its payrolls and extends all statutory benefits such as PF, work environment as well and also takes care of their skill development by conducting routine training programs as well as awareness camps. Your Company also conducts frequent health checks and health camps for the drivers so as to make them more health conscious. Shortages however still remain and your Company is striving to further encourage more and more individuals to take up driving by visiting potential villages and towns and trying to remove the stigma being associated with the driving profession. The management also propagates at several forums the necessity of a joint industry effort to overcome this problem which is only expected to become more challenging in the days to come.

Lack of owned infrastructure at key centers is another present day weakness in the management’s opinion. The Company has established owned transshipment hubs at key locations like Hubballi, Mumbai, Mangalore, Mysore, Bhilwara, Gangavati and Davangere. Long term leases have also been entered into at key locations such as Chennai, Delhi, Hyderabad, Bengaluru, Pune, Kolkata, etc. Owned infrastructure enables the company to set up good quality maintenance facilities as also better infrastructure for goods movement and material handling. The ownership of premises at such key business locations provides the Company with a lot of flexibility in conducting business operations and the same lead to considerable cost savings and also enables the Company to scale up its service levels. Setting up such owned infrastructure would however entail significant investments which in turn affect the management would need to balance the two so as to optimize stakeholder value as well as to cater to business growth for future. The Company is expected to invest significant resources in developing the Surat facility in the ensuing fiscal and the management expects the said facility to be operational by the end of FY 2019. Your Company would consider gradually expanding its owned infrastructure at such key locations in the years to come.


The implementation of GST is expected to be a boon for the entire logistics industry. It will hasten the gradual shift of customers from unorganized to organized service providers leading to better business practices even for smaller businesses which in turn would benefit the organized logistics operators such as your Company. GST would also provide a big boost for the movement of LTL cargo and VRL, being the industry leader in the LTL space is expected to benefit from GST implementation.

After the implementation of GST, the determining factors of planning logistics will be the fundamental principles of logistics - demand, supply, near-to-customer, sourcing, transportation costs and inventory costs. This will ensure a major shift and/or consolidation in warehousing locations, transportation costs and will also impact the trends of certain commercial vehicle classes. We believe that there would a marked shift in the operating model of surface transporters in the country and the hub-and-spoke model would suddenly find a lot of followers in the Indian context. Your Company operates on a hub-and-spoke model all along and its experience and expertise in the movement of LTL parcels is unmatched which has enabled it to be at the very helm of this business in India. Your Company also has successfully implemented processes within the operations to ensure full compliance with the GST and E-way bill requirements. With in-house IT, the Company is also expected to benefit capability to smaller vendors in the industry.


Fluctuations in fuel prices resulting from diesel de-regulation, lorry hire charges payable to third party vehicles and input costs especially those related to tolls as also others like rent, salary etc, increase in minimum wages have a significant bearing on the Company’s profitability margins. These represent a significant portion of the operating costs and any inability to pass on the same in entirety affects profit margins adversely. In particular, the cost of fuel fluctuates on a daily basis and the same is beyond our control. Historically, due to low customer dependencies, the Company has been in a position to pass on predominantly or at times even completely such increases to customers through periodic increase in freight rates or bus ticket prices. However, the ever present volatility represents a considerable threat to our result of operations.

Whereas GST offers an opportunity, till its stabilization especially with regards to SMEs and smaller businesses who form a significant portion of our clientele, we expect considerasble volatility in the freight volumes.

The Company’s operations could also be affected owing to development of newer policies by the different State Governments of the country. To quote an example, several states / cities have prohibited the entry of commercial diesel operated vehicles that are beyond a certain age. This necessitates the shifting of older vehicles and deploying these over other permitted routes which entails a cost. Also, one can never be certain as to when similar decisions would be implemented across other States and major cities which could affect us adversely. Also, protectionism policies in respect of passenger buses being considered by a few states could also affect the passenger travel business. We however have adequate strength in our business model to overcome any such developments albeit the same could have a bearing on associated costs. Needless to say, the inherent business model of the Company ensures that your Company is much better placed as against its competition in this regard.

The Company’s business operations are totally dependent on the road network in India. There are various factors that affect the road network such as political unrest, bad weather conditions, natural calamities, regional disturbances or even third party negligence that can affect the condition of vehicles and cargo / passengers. Even though the Company undertakes various measures to avoid or mitigate such factors to the extent possible, some of these have the potential of causing extensive impact on operations and assets.


The overall revenues of your Company recorded a nominal growth during the current year in comparison with the earlier year. Goods transportation revenues recorded a marginal growth of 6.39%. The said growth is the result of a growth in the realization per ton and the freight volumes remained relatively flat during the year.

The Bus Operations division recorded an increase of 9.96%. Despite of small reduction in fleetsize, increase in the realization per passenger and occupancy rates combination yielded additional revenue vis-a-vis the earlier fiscal.

The Wind Power division of the Company recorded revenues of Rs. 2172.06 lakhs, a decrease of 7.45% arising from less than favourable wind velocity during the year when compared with the earlier period revenue of Rs. 2346.84 lakhs The transport of passengers by air operations recorded revenues of Rs. 1312.97 lakhs as against corresponding revenues of Rs. 1603.43 lakhs.


With the GST and related E-waybill implementation we expect good days for the entire domestic road freight transport industry. One of the key achievements of the e-way bill will surely be the effective dissolution of state borders. The amount of time wasted at state borders to validate documents with regards to inter-state movements of goods was a hindrance to any business beyond its home state. Organized players will stand to benefitand the smaller and unorganized players need to step up and meet the compliance requirements which appears very difficult given the present day scenario.

Though the initial days could be chaotic we expect that the stabilization of the GST regime will usher in a new era for our industry. On the passenger bus operations front, we expect that the legislative changes will gradually make way for organized players to sustain and the present day unhealthy competition to wane in the coming days.


The Company has an Internal Control System, commensurate with the size, scale and the nature of its operations. The Internal Control function emanates at the Board level and its scope and authority of the Internal Audit function is well defined. To maintain objectivity and independence, the Internal Audit function reports to the Chairman of the Audit & Risk Management committee of the Board & to the executive Chairman and the Managing Director. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies across the Company. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls.

Significant audit observations and recommendations along with corrective actions thereon are Risk Management committee of the Board.

As regards the operation of internal controls, majority of these have been inbuilt in the internal procedures established by the organization which are also documented in the Procedure Manual. The said manual describes in details the methodology to be adopted right from transacting bookings, effecting consignment deliveries, etc. and also describes the practices to be followed for the smooth operation of business. Inspection teams are formed at the head office as well as at the transshipment level and cover the entire branch network of the Company periodically for exhaustive inspection for adherence to the set procedure. Deviation from the laid down procedure is escalated to the Functional heads as also directly to the Executive Directors. The Company had laid down guidelines, policies, procedures and structure to enable implementation of appropriate internal financial controls across the company. These control processes enable and ensure the orderly and efficient conduct of company’s business, including safeguarding of assets, prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and timely preparation & disclosure of financial are control processes both on manual and IT applications including ERP applications, wherein the transactions were approved and recorded. Review and control mechanisms are built in to ensure that such control systems are adequate and operating effectively.

Other control processes are IT driven and the in-house information technology capabilities ensure that due flexibility available in the system to further strengthen controls as the case may be. Your management appreciates the need to remain efficient in their workings and recognizes its responsibility in establishing controls as also effectively implementing them and monitoring their effectiveness on a periodic basis.


( Rs. in lakhs)

Particulars Year Ended 31st March, 2018 Year Ended 31st March, 2017
Total Income 1,93,655.07 1,81,238.33
Profit Before Finance and Depreciation 24,846,.44 22,748.13
Finance Charges 1,144.09 2,400.21
Provision for Depreciation 9,763.42 9,817.85
Net Profit Before Tax (incl. exceptional 13,938.93 10,530.07
income item)
Tax Expense 4,682.51 3,482.81
Net Profit After Tax 9,256.42 7,047.26
Interim Dividend on Equity Shares - 3,649.74
Tax on Interim Dividend - 743.00
Transfer to General Reserve 925.64 704.73
Other comprehensive income 186.01 (75.98)
Surplus carried to Balance Sheet 8,144.77 2,025.77

Board of Directors of the Company at its meeting held on November 3, 2017 had approved a proposal for the Buy-back by the Company of its fully paid up Equity Shares for an aggregate amount not exceeding Rs. 41,40,00,000 (Rupees Forty one crores forty lakhs only), ("Maximum Buy-back Size"), being 7.65% of the total paid up share capital and free reserves of the Company based on the audited financial statements of the Company as at March 31, 2017 (being the date of last audited financial statements of the Company then), for a price not exceeding Rs. 460/- (Rupees Four hundred and sixty only) per Equity Share ("Maximum Buy-back Price") from the shareholders of the Company excluding promoters, promoter group, persons acting in concert and persons who are in control of the Company, payable in cash via the open market route through the stock exchanges, in accordance with the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998, as amended ("SEBI Buyback Regulations") and the Companies Act, 2013 and rules made thereunder, as amended (the process hereinafter referred to as the "Buy-back"). The said Buy back was done in lieu of dividend during the current fiscal to reward the shareholders. The Promoters did not participate in the said Buy back

The Company completed the Buyback of 9,00,000 equity shares of the Company, being the maximum size, at an average price of Rs. 419.39 (Rupees Four hundred and nineteen and thirty nine paise only) thereby utilizing an amount of Rs. 37,74,49,961.90 (Rupees Thirty Seven Crores Seventy Four Lakhs Forty Nine Thousand Nine Hundred Sixty One and Ninety paise only) (excluding Transaction Costs) which represents 91.17% of the Maximum Buyback Size. The said buyback was completed on January 30, 2018. The total Revenue of the company increased by 6.61% from Rs. 180308.51 lakhs to Rs. 192232.03 lakhs and including other income the revenue is increased by 6.85% from Rs. 181238.33 lakhs to Rs. 193655.07 lakhs.

Goods Transportation (GT)

- GT Revenue increased by 6.39% from Rs. 142615.26 lakhs to Rs. 151722.15 lakhs

- Overall tonnage remained flat partly due to uncertain economy as a result of changes in key policy, notably GST implementation and E-way bill implementation. Freight volumes picked up during the second half of the fiscal. The

Company registered a marginal increase in the overall freight volume. Realization per ton also increased by 6.2%.

- On account of flat tonnage, the increase in operational expenses such as Fuel expenses, Employee cost, Administrative

Expenses, Toll Expenses, Rent Expenses, Agency commission, Vehicle Insurance impacted the operating margins.

- The ever increasing fuel rate during the year affected the operating margins. Though there was an increase of 5.52% in procurement of fuel through dealers, due to various proactive initiatives taken by your company, we were able to reduce the fuel cost margins. Average procurement cost per litre of Diesel in FY18 was up by 3.54% from Rs. 54.79 in FY17 to

Rs. 56.73 in FY18 on an average based on our consumption. Bio-fuel usage was to the tune of 14.14% of the total fuel consumption during FY 2017-18 and the same increased by 2.51% from 11.63% during FY 2016-17.

- Due to changes to State labour laws, whereby significant increase was made to the level of minimum to employees also coupled with the salary increment extended during the second half of the fiscal, employee costs increased substantially during the year. Increase in the limits relating to ESI and Gratuity notified during the year also resulted in higher provision towards Gratuity and Leave Encashment.

Passenger Travel (PT)

- PT revenue increased by 9.96% from Rs. 32620.63 lakhs to Rs. 35870.88 lakhs

- It is indeed noteworthy that the performance of the said division increased due to Increase in number of passengers by 3.71%, Increase in realisatation per passenger by 6.16% inspite of reduction in the number of buses and stiff competition faced during the Year. This was possible due to better planning and reorganizing of of routes.


Sale of Power decreased by 7.45% from Rs. 2346.84 lakhs lakhs to Rs. 2172.06 lakhs. Sale of Power decreased mainly due to decrease in net power units generated due to seasonal fluctuations in wind velocity.

Transport of passengers by Air

Revenue from this segment decreased from Rs. 1603.43 lakhs to Rs. 1312.97 lakhs.

Cost saving measures

During the year we have initiated few key cost saving measures as under:

- Extension of Fast tags on all our vehicles, which apart from reducing costs also helps in increasing Time and Efficiency by avoiding vehicle congestion at various toll booths.

- Proactive Initiatives taken by the company in procurement of fuel like increase in the procurement of Bio Fuel, Redemption benefits from IOC & utilizing cash back benefits

- We also initiated a negotiation with Banks and FIs to reduce the rate of interest pursuant to repo rate cuts by RBI also used the operating cash flows of the effectively during the year to repay other existing high cost debts. The same led to a decrease in the average interest rate cost and the Net debt levels of the company as of March 31, 2018 stand reduced to Rs. 6277.58 lakhs as against a corresponding figure of Rs. 17396.35 lakhs for the previous year.

- We also laid due emphasis on prioritizing the deployment of our own fleet thereby reducing dependence on outside vehicles. During the year there was a significant decrease in the distance covered by outside vehicles vis-a-vis the earlier year. To ensure quality of service we have also commenced GPS tracking of outside vehicles.

- The company has saved monetary outflow of Rs. 89.41 lakhs under the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) plant for enrolling new employees in EPFO and such savings would continue for first three years of such employment.


As a result of the above, the EBITDA of the company increased from Rs. 22748.13 lakhs to Rs. 24846.44 lakhs in absolute terms and as a percentage of revenue increased from 12.55%to 12.83%. The same has resulted in to increase in EBIT of the company from Rs. 12930.28 lakhs to Rs. 15083.02 lakhs in absolute terms and as a percentage to revenues, increased from 7.13% to 7.79%. Resultantly, Profit before Tax increased from Rs. 10530.07 lakhs to Rs. 13938.93 lakhs and as a percentage of revenue increased from 5.81% to 7.20%. Profit after Tax increased from Rs. 7047.26 lakhs to Rs. 9256.42 lakhs and as a percentage of revenues increased by 0.89% from 3.89%. to 4.78%.


The total employee strength of the Company as of 31.03.2018 was 19781. Given the nature of operations, a significant portion of the said employee strength comprises of drivers, cleaners, garage mechanics and other unskilled employees. Despite the large number of employees as also considering the widespread geographical operation of the Company, your management feels proud to state that the employer – employee relations remained extremely cordial throughout the year. There were no instances of strikes, lockouts or any other action on part of the employees that affected the functioning of the Company. It is noteworthy that there is no Employee Union / Trade Union / Union within the organization.