VRL Logistics Ltd Management Discussions.


Led by years of under-investment, rail has suffered as a mode of freight transportation, even as road networks have grown exponentially with high investments over the years. Road (estimated at 65% of transportation) is likely to remain the dominant mode despite the potential commissioning of Dedicated Freight Corridors in 2021. Within road, eventual growth would be in the LTL and express business models, while FTL is likely to continue to suffer due to fragmented ownership and low pricing power. Indias freight transportation is estimated at around USD 150 bn plus. Driven by the underlying economic growth, high infrastructure investments (especially in road transport) and favourable government initiatives, it is expected to grow at 9- 10% annually over FY18-25. The road transportation is the dominant category and is expected to remain the main segment.

Road transport in India is dominated by the Full-Truck-Load (FTL) segment, which makes up around 88% of the road industry size, due to low entry barriers. While the FTL business is commoditised, the road express business (2%) requires setting up of a strong network to get adequate tonnage and be profitable. Less than truck load (LTL) is about 10% of the road transportation sector and it is more profitable than FTL. Indias USD 100 bn road logistics market has clocked 9-10% CAGR over the past decade. It is believed that with the increased economic activity, current & future mix of rail and roads in surface transport, supported by positive regulatory changes and infrastructure investments will lead to the sector posting CAGR of around 10% to around USD 190 bn by FY25. A key trend that one can observe in the past 12-18 months, is that post GST there has been a beginning of a shift from FTL to LTL business. This is mainly due to the customers demanding quicker and smaller truck loads directly to distributors rather than multiple warehouses that are situated in every state.

The road transportation sector is highly fragmented with the presence of a large number of unorganised small truck operators. It is estimated that over 70% of truck owners in India have a fleet size of between one and five trucks. Truck operators are heavily dependent on intermediaries such as brokers and booking agents. The handlers hold a dominant position in pricing freight rates, shrinking margins of truck operators. Consequently, pure road transportation or trucking lacks pricing power and has low ability to pass on rising fuel and other costs. Larger fleet owners are obviously much better placed due to a large client base which they use to optimise utilisation and achieve better margins. On per kg basis, LTL has relatively higher margin compared to FTL as the customer has relatively low bargaining power. Established players who have large fleets of about 1,000 plus trucks are able to venture into the high margin LTL business.

Demand Drivers

In FY18, Indias estimated nominal GDP was USD 2.8 tn and road logistics contributed more than 3.5% to it. In line with growth in economic activity, demand for transportation services is bound to grow. By FY25, it is estimated that freight transportation by road would constitute 70% plus of total domestic freight transportation.

In the 1950s, the proportion of goods carried by rail and road was 89% and 11%, respectively. By 2013, the share of road freight increased to around 65%. Even though freight transportation through rail requires lesser fuel consumption and is cheaper on cost per tonne basis compared to road transport, the shift from rail to road has been majorly on account of capacity constraints, non-competitive tariff, connectivity, infrastructure and subsidisation of passenger transportation by charging higher freights. While initiatives such as Direct Freight Corridor and tariff revisions will boost the sector, road transportation will continue to remain dominant. With infra improvements in roads, positive regulatory changes and growth in overall demand will further increase the share of roads in freight transportation, which is expected to stabilise at around 70%. Consumption in remote locations, rural areas and difficult terrain is expected to increase. Lack of rail or port connectivity will increase dependence on road transport to fulfil the spurt in consumption, which is the only mode of transport which can reach these destinations.


Indias road network comprises 115,435 kms of national highways, while the total road network spans 5.6 million kms. Road building rate has increased from about 12 km per day in FY15 to around 27 km per day in FY18; the government is targeting around 40 km per day. In FY18, 122,432 kms of highways were constructed. Also, with GST and implementation of e-way bill, transit times at inter-state border check points, which previously accounted for up to 60% of the total transit time, have been reduced. Such reduction is expected to increase the trucking capacity sans further investments due to a skewed demand and the time required to see the full effects of GST realisation of additional capacity is expected to be gradual.

Technology is changing the landscape of road transport in India. Various startups are using more intensive technology to provide real-time tracking of trucks, increased transparency and accuracy with regard to delivery times and more efficient capacity utilisation. Due to tech-enabled scheduling of loads, the use of middlemen is reducing and resulting in higher efficiency. We can see the apparent benefits of new tech-based business models; however, it poses a threat to established road transport companies and forces them to come up with innovative solutions to hold their market share.

(Source: Extracts from Edelweiss Securities Research report on Logistics)


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 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 strength 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 benefits from the recent revision in Safe Axle Weights for Goods Transport vehicles by the Transport Division of Ministry of Road Transport and Highways which permits the carrying of higher weight on a Goods Transport vehicle thereby increasing its payload. In combination with own vehicle body designing facility and also with combination of multiple types of commodities handling such as heavy and bulk consignments inside goods carriages, the goods carriages can be utilized at higher capacity as compared to the earlier periods.

Your Company also has a very well diversified customer base. During FY 2018-19, the Companys largest customer 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, ESI, etc. to its drivers. The Company offers a good work environment as well and also takes care of their skill development by conducting routine training programs as well as awareness camps for its drivers. Your Company also conducts frequent health check up 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 profession 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 managements opinion. The Company has established owned transshipment hubs at key locations like Hubballi, Mumbai, Mangalore, Mysore, Bhilwara, Gangavati and Davangere. The facility at Surat is nearing completion and we expect to start commercial operations soon. 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 return ratios and 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 has been on the back burner for several years now and the same is expected to be a boon for the entire logistics industry.The implementation of GST is expected to 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 GST is implemented, 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 from monetizing this capability to smaller vendors in the industry.

Your Company also has successfully obtained the requisite approvals from the respective RTOs and is now well poised to reap the benefits under the recent revision in Safe Axle Weights for Goods Transport vehicles by the Transport Division of Ministry of Road Transport and Highways which permits the carrying of higher weight on a Goods Transport vehicle. As of date, majority of the high capacity tonnage vehicles have been approved thereunder and these vehicles will be effectively used to carry the additional load as compared to the earlier periods. The same is expected to benefit your Company in the coming days.


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. have a significant bearing on the Companys 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 has increased in the recent years fortnightly and fluctuates significantly due to various factors which are beyond our control. In the coming days, the same would be a daily phenomenon. 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, the initial transition still presents lack of clarity, especially for the SMEs and smaller businesses who form a significant portion of our clientele. Till the time GST implementation is stabilized we do expect significant volatility in the freight volumes.

The Companys 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 Companys 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 increased by 9.34% during the current year in comparison with the earlier year.

Goods transportation revenues recorded a growth of 11.13%. The said growth is the result of a growth in the realization per ton and the freight volumes

The Bus Operations division recorded an increase of 6.03%.Despite a small fleet reduction, the realization per passenger and occupancy rates combination yielded additional revenue vis-a-visthe earlier fiscal.

The Wind Power division of the Company recorded revenues of द 2208.51 lakhs, an increase of 1.68% arising from favourable wind velocity during the year when compared with the earlier period.

The Transport of Passengers by Air divisions recorded revenues of द 1072.22 lakhs as against corresponding revenues of 1312.97 lakhs for the previous year.


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 which dared to spread its wings, beyond its home state. Organized players will stand to benefit and 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. Similarly we now expect better utilization and revenue realization per vehicle for our Goods Transport Vehicles in view of the recent revision in Safe Axle Weights for Goods Transport vehicles which permits the carrying of higher weight on a Goods Transport vehicle thereby increasing its payload.

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 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 presented to the Audit 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 level 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 companys 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 statements. There 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 is 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 recognized their responsibility in establishing controls as also effectively implementing them and monitoring their effectiveness on a periodic basis.

Other control processes are IT driven and the in-house information technology capabilities ensure that due flexibility is 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, 2019 Year Ended 31st March, 2018
Total Income 2,11,746.82 1,93,655.07
Profit Before Finance Costs and Depreciation 25,191.92 24,846,.44
Finance Costs 1,086.37 1,144.09
Depreciation and Amortisation of expenses 10,058.09 9,763.42
Profit Before Tax 14,047.46 13,938.93
Tax Expense 4,855.85 4,682.51
Profit for the Year 9,191.61 9,256.42
Interim Dividend on Equity Shares 3162.02 -
Tax on Interim Dividend 649.96 -
Transfer to General Reserve 919.16 925.64
Other Comprehensive Income 288.34 186.01
Surplus carried to Balance Sheet 4,172.13 8,144.77

The Revenue from operations increased by 9.74% from द 1,92,232.03 lacs to द 2,10,954.40 lacs and including other income the Total income is increased by 9.34% from Rs. 1,93,655.07lacs to द 2,11,746.82 lacs.

Goods Transportation (GT)

- GT Revenue increased by 11.13% from द 1,51,722.15lacs to द 1,68,601.88 lacs

- The increase in Revenue is due to increase in Tonnage by 5.49 % and increase in realization per tonne by 5.79%.

- Despite the growth in revenue the EBITDA Margins showed resilience and was slightly lesser at 11.9% compared with 12.83% in FY 18. The pressure on margin during the year is due to increase in Fuel Expenses which the company was able to pass on with a lag, wherein Average Dealer Procuring cost per ltr was up by 15.70% , from Rs 60.73 in FY-18 to Rs 70.27 in FY-19. Diesel Cost expenses as a % to total income increased by 1.44% from 24.34% to 25.78%. Other Expenses that impacted the margins besides fuel costs were Hamali charges, Vehicle Insurance and Electricity charges.

- Bio-fuel usage was to the tune of 19.45% of the total fuel consumption during FY 2018-19 and the same increased by 5.31% from 14.14% during FY 2017-18.

- Due to revision in axle load norms, the load carrying capacity of the existing vehicles of VRL increased and the operating margins from the goods transportation business improved in H2FY19. Apart from better asset utlisation and improved average billing per trip, the additional capacity available helped in reducing the dependence of VRL on hired vehicles thus bringing down lorry hire charges for the company.

Passenger Travel (PT)

- PT revenue increased by 6.03% from द 35,870.88 lacs to द 38032.74 lacs

- The increase in Revenue is due to increase in number of passengers travelled by 1.87% despite of decrease in number of Buses operated during the year by 15 nos from 396 in FY-18 to 381 in FY -19 and Increase in realisation per passenger by 4.12%

- Despite the growth in revenue, the profitability margins have declined in FY2019 as compared to FY2018 due to increase in fuel costs. Since the dynamics of pricing is completely driven by the market Company is unable to increase the realisation per passenger in proportion to the increase in fuel costs. This impacted on EBITDA Margins by 2.05% declined from 12.93% in FY 18 to 10.88% in FY 19.

Wind power

Sale of Power increased by 1.68% from द 2172.06 lacs to द 2208.51 lacs. Sale of Power increased mainly due to increase in net power units generated during the year by 1.67 % from 63907920 units in FY-18 to 64977676 units in FY-19 Transport of Passengers by Air

Revenue from this segment decreased from द 1312.97 lacs to द 1072.22 lacs.

Cost saving measures

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

- The Company benefitted from revision in axle load norms for the Goods Transport vehicles. Accordingly as of today majority of the vehicles have been certified and approved by the respective RTO Authorities to carry the additional load as permitted by the Government. On account of this the utilization levels of the existing vehicles have been improved and also realization per trip is increased as compared to the earlier period.

- Introduction of Fast tags on all our vehicles resulted into lower advance amounts for trip expenses as also resulted in our availing a considerable discount on the toll costs

- Proactive initiatives taken by the company in procurement of fuel like increase in the procurement of Bio-fuel, Redemption benefits from IOC etc.

- 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. Net debt was 12879.84 lakhs as on Mar 31,2019 compared to 6277.58 akhs as on Mar 31,2018.

- A conscious branch profitability study was initiated and measures were taken to close 43 non performing branches, while adding 23 new branches. This not only helped in our saving costs, but also resulted in consolidation of operations without affecting Goods Transport business turnover.

- 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.


As a result of the above, the EBITDA of the company increased from द 24846.44 lakhs to द 25191.92 lakhs in absolute terms and as a percentage of revenue decreased from 12.83%to 11.90% The same has resulted in to increase in EBIT of the company from द 15083.02 lakhs to द 15133.83 lakhs in absolute terms and as a percentage to revenues, decreased from 7.79% to 7.15%. Resultantly, Profit before Tax icreased from द 13938.93 lakhs to द 14047.46 lakhs and as a percentage of revenue decreased from 7.20% to 6.63%. Profit after Tax decreased from द 9256.42 lakhs to द 9191.61 lakhs and as a percentage of revenues decreased by 0.44% from 4.78%. to 4.34%.

Significant changes to key financial Ratios:

Barring Debt Equity ratio and Current Ratio, there was no significant change to the other key financial ratios, i.e. Debtors Turnover, Inventory Turnover, Interest Coverage ratio, Operating Profit margin and the Net profit margin.

The Debt Equity ratio was 0.1 as of March 31, 2018 and the same increased to 0.2 as of March 31,2019. The same is the result of meeting capex by raising debt. During the year the Company raised loans to finance the purchase of certain Goods Transportation Vehicles as also for setting up the Logistics infrastructure at Surat.

The Current ratio of the Company improved from 1.07 as of March 31, 2018 to 1.38 as of March 31, 2019. Whereas the key current asset holding period remained more or less the same, the improvement in this ratio is on account of a drastic reduction in the Short term borrowing, i.e. utilization of cash credit limits.

Return on Net Worth

The Return on net worth declined from 15.60% for financial year 2017-18 to 14.22% for the financial year 2018-19. The same is owing to a decline in the profitability margins, reasons for which have been enumerated above.


The total employee strength of the Company as of 31.03.2019 was 19030. 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.