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Sunday, August 23, 2015


Scrip Code: 539118 VRLLOG
CMP:  Rs. 370.30; Market Cap: Rs. 3,378.74 Cr; 52 Week High/Low: Rs. 406.70 / Rs. 261.05
Total Shares: 9,12,43,495 shares; Promoters : 6,34,80,000 shares – 69.57 %; Total Public holding : 2,77,63,495 shares – 30.43 %; Book Value: Rs. 42.92; Face Value: Rs. 10.00; EPS: Rs. 9.67; Dividend: 40.00 %; P/E: 39.26 times; Ind. P/E: 35.64; EV/EBITDA: 13.81x
Total Debt: Rs. 443.35 Cr; Enterprise Value: Rs. 3,805.40 Cr.

VRL Logistics Limited: The Company was founded in 1976 and is headquartered in Hubballi, India. It was formerly known as Vijayanand Roadlines Ltd. and changed its name to VRL Logistics Limited in August 2006. VRL Logistics Limited provides goods and passenger transportation services in India. It offers various goods transportation services, including general parcel and VRL priority, courier, less than truck load, and full truckload services through its transportation network in 28 states and 4 Union Territories. The company came out with an IPO on April 15 2015 offering 2,28,23,333 equity shares of Rs. 10 each for Rs. 205 per share raising Rs. 467.88 Cr. The issue consisted of fresh issue of 57,07,333 of equity shares and offer for sale of 1,71,16,000 equity shares by the seller shareholders. It got listed on April 30, 2015 at Rs. 288 making a high of Rs. 309.00 on listing day. The object of offer for sale was to purchase of goods transportation Vehicles and repayment & prepayment of certain borrowings. The company’s goods transportation service business serves a range of industries, including fast moving consumer goods sector, as well as other industries comprising food, textile, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, footwear, and machinery. It has a fleet approximately 3,500 owned vehicles. The company also provides bus services in the states of Karnataka, Maharashtra, Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, Rajasthan, and Goa through its owned fleet of approximately 455 buses (including 53 staff buses), including Multi Axle Volvo seater buses, Multi Axle Volvo I-shift sleeper buses, Isuzu seater buses, non-Volvo A/C sleeper, sleeper buses, and semi sleeper buses. In addition, the company engages in liquid transportation and car carrying operations. Further, it is involved in the sale of power and sale of certified emission reductions units generated from operation of wind mills; and provision of air charter services. As of March 31, 2014, company had 81 branch offices of which 74 were leased offices and seven were owned offices, 739 agencies and 416 prepaid agencies for its bus operations business. Company also provide ticketing facilities through its website, as well as through its network of commission agents and online travel agents such as,, and Company also operate car carrier vehicles for transportation of cars, vehicles for liquid transportation, as well as a courier service business across the State of Karnataka. Company also have minor business interests in wind power, air charter services and hospitality. VRL’s fleet size for goods and passenger transport business grew from 2,730 in 2010 to 3,874 as of March 31, 2014. VRL LOGISTICS LTD is locally compared to Patel Integrated logistics ltd, Transport Corporation of India Ltd, Shreyas Shipping, Costal Roadways ltd, Gati Ltd, Gateway Distripacks Ltd, Allcargo Logistics Limited, Blue Dart Express, Snowman Logistics nationally and globally with Senko Co of Japan, AMERCO Inc of USA, CSX Corp of USA, Con-way Inc of USA, Kansas City Southern of USA, PAM Transportation Services of USA, SixtSE of Germany, VTG Aktiengesellschaft of Germany, Stagecoach Group Plc of United Kingdom, Northgate Plc of United Kingdom, National Express Group Plc of United Kingdom, DSV A/S of Denmark, Dazhong Transportation of China, ComfortDelGro Corporation Ltd of Singapore, CJ Korea Express Corporation of South Korea, Central Japan Railway Co of Japan, CAR Inc of China, Bangkok Metro Public Co of Thailand, Asciano Ltd of Australia, Canadian Pacific Railway Ltd of Canada, USA Truck Inc of USA, Universal Truckload services of USA.

Investment Rationale:
VRL Logistics Ltd owns and operates the largest fleet of commercial vehicles in the private sector in India. VRL has now grown into a logistics and transport company which is currently the largest fleet owner in India with a fleet of 4,077 Vehicles including 373 Passenger Transport Vehicles & 3,704 Goods Transport Vehicles as of 10 May 2015. VRL also has its mentions in the Limca Book of Records as a single largest fleet owner of commercial vehicles in India in the private sector. VRL provides general parcel and priority parcel delivery (less than truckload services, LTL), courier and full-truckload (FTL) services through its widespread transportation network in 28 States and 4 Union Territories across India. Its operational infrastructure for the goods transportation business as of June 30, 2015 comprised 624 branches comprising 604 leased branches and 20 owned branches and 346 agencies across India, and of such 624 branches, 48 (41 leased branches and seven owned branches) served as strategic trans-shipment hubs for its operations. VRL employs nearly 4,506 drivers for its fleet of 4,024 vehicles, who are provided with pension benefits, accident insurance coverage, etc. The company also provides attractive incentives for efficient driving, on-time performance, etc, which increases overall remuneration and hence provides drivers with job satisfaction. The logistics sector presents an incredible arena of opportunity because nearly 90 % of the market is still controlled by the unorganized sector. The Indian logistics industry is expected to grow at 15 % to 20 % per annum, reaching revenues of $38,500 Cr by 2016. The demand for focused supply-chain services has been fuelled by industries with a high propensity to outsource from industries like automobiles, consumer packaged goods, hi-tech, telecom and retail amongst others. In India, Logistics sector has generated employment for near about 4.5 Cr people. India currently spends 12 % to 13 % of its GDP on logistics as compared to 8 % to 9 % in developed economies. For the sectors moving physical products this percentage is much higher because 55 % of India’s GDP is generated by the service sector. The industry as a whole is very fragmented and disorganized. India's logistics sector continues to be attractive for global investors and Investment in logistics in India is projected to grow annually at 10 %. VRL Logistics is differentiated itself in service offerings and building a  large integrated hub-and-spoke transportation network and extensive operational infrastructure, including advanced technology systems which enabled VRL to establish a leadership position in the surface logistics industry with a strong brand name across India. 
VRL’s hub-and-spoke operating model enables it to transport various parcel sizes and provide its customers with access to multiple destinations for booking and delivery of goods, and provide “last mile” connectivity to even remote locations in India. This involves effective consolidation of goods from multiple locations at its trans-shipment hubs, which are continuously operated on a 24X7 basis throughout the year, and redistribution thereof to their respective destinations, resulting in operating and cost efficiencies, optimal capacity utilization of co’s transportation vehicles, rationalization of routes, as well as flexibility in operation, allocation and optimal utilization of resources including manpower. Road transport is competitive even at higher prices given its advantages of flexibility, better service quality and end-to-end delivery. Freight transporters are broadly classified as small fleet operators (SFOs), medium fleet operators (MFOs) and large fleet operators (LFOs) on the basis of number of trucks they own or control. Typically, an LFO is one who owns more than 20 trucks, while SFO is one who owns less than 5 trucks. VRL is one of the largest LFO in India with a fleet of 3,649 trucks. Road freight transportation is highly fragmented, with Small Fleet Owners cornering a high market share of approximately 77 %, as per CRISIL. Low entry barriers have led to a proliferation of small truck operators in SFO segment, resulting in high fragmentation of this segment leading to competition, offering customers better bargaining power also the lack of service differentiation amongst the smaller operator’s results in very competitive pricing. Large fleet operators though enjoy distinct advantages over Small Fleet Operators. Large Fleet Operators typically enjoy scale advantages and provide a variety of value-added services as well such as warehousing, express service, third-party logistics (3PL), consulting, etc. and the key factors impacting the profitability of freight transporters include freight rates, fuel costs, fleet utilisation rates, load flexibility and regulations among others. Given that the industry is highly fragmented, typically, LFOs have a better bargaining power than SFOs due to the contractual nature of the former’s business. LFOs have the flexibility to offer services like full truckload (FTL), less than truckload (LTL) and express cargo transportation. LTL & FTL are higher-margin services. In the express cargo segment, LFOs realise positive cash flow even at 40 % utilisations due to higher realisation per tonne. With this flexibility in the kind of load services being offered, LFOs are able to restrict the impact on their margins during periods of low freight availability. On the cost front, fuel (diesel) is the single largest cost component. LFOs generally operate on a yearly contract basis and include a fuel cost pass-through clause to hedge against hike in fuel prices. However, due to weak freight availability, SFOs who operate largely in the spot market are unable to completely pass on such increases. The implementation of GST is expected only by CY2016. The logistics sector is likely to respond positively to GST by making more use of the hub and spoke systems, large scale warehousing and specialized services. A gradual opening up of key sectors like retail, aviation, defense etc. will also help to boost this sector. The entry of multinational companies (MNCs) in sourcing, manufacturing and distributing could be the other growth drivers.

Outlook and Valuation:
VRL has pioneered in providing a safe and reliable delivery network in the field of parcel service. It has spread its operations to Courier Service, Priority Cargo & Air Chartering to meet the growing demands of its burgeoning customer base. VRL Logistics (VRL) is one of the largest commercial vehicle owners in the Indian private sector, and provides goods transportation and passenger bus operations across India. Its goods transportation segment contributes around 78 % to the company’s FY15 revenues, and its higher-margin parcel delivery business contributes around 77 % to its revenues. 3PL & Warehousing solutions offered by VRL are tailor-made and cater to unique needs of its diverse customer base. With the largest goods transportation network in India, VRL parcel service is indispensable for a large number of Corporate Houses. This network spans the length and breadth of the country and is supported by strategically located transshipment hubs. In the goods transportation business, it serves a number of customers in the FMCG industry as well as in general commodities such as food, textiles, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, glass, automotive parts and machinery. The company’s hub-and-spoke operating model helps to serve a diverse mix of end-consumers in various industry verticals, which enables it to transport various parcel sizes and provide customers with access to multiple destinations for booking and delivery of goods. Its extensive network with large number of fleets enables VRL to provide last mile connectivity to even remote areas in India. The large fleet, most of which is owned by the Company, enables it to reduce dependence on hired vehicles, retain control of the value chain and service quality, and establish a reputation for reliable and timely delivery of consignments. VRL owns an in-house vehicle body designing facility at Hubli, Karnataka, to build customised vehicles with lighter and longer bodies to carry higher payload, resulting in increased margins per vehicle. The company hires third-party vehicles only during periods of high demand and in emergency situations. Operating owned vehicles enables VRL to significantly reduce vehicle hiring and operational costs. VRL’s large fleet of owned vehicles allows it to cover a large number of routes, and maintain timely delivery of consignments. The variety of goods transportation vehicles in its fleet enables the company to serve a diverse mix of consignments while the range of passenger buses enables to serve transportation requirements of different customer segments. The company’s goods transportation fleet primarily comprises heavy commercial vehicles carrying capacity of more than 7,500 kg with the same accounting for 66 % of its goods transportation fleet as of Mar’15. VRL also enjoys the benefits of economies of scale (discounts, etc.) especially during bulk procurement of key items like vehicle chassis, diesel, tyres, spare parts, etc. The company relies largely on Ashok Leyland to supply it with vehicle chassis as per customised requirements. In the case of spare parts, VRL has entered into supply arrangements with Ashok Leyland and VE Commercial Vehicles who have set up dedicated outlets at the Hubli facility, which allows VRL to source spares parts at competitive rates and reduce procurement timelines. GST will help make India’s manufacturing competitive by cutting high logistics and warehousing costs. Currently, each of India’s 29 states taxes goods that move across their borders at different rates. As a result, freight that moves across the country is taxed multiple times. Worse, there are long delays at inter-state checkpoints, as state authorities review and examine freight and apply the relevant taxes and other levies. Truck delays average five-to-seven hours at inter-state checkpoints. This, combined with other delays, keep trucks from moving during 60 % of the entire transit time. As much as 65 % of India’s freight moves by road, hence GST is critical for India. Simply halving the delays due to roadblocks, tolls and other stoppages could cut freight times by some 20-30 % and logistics costs by an even higher 30-40 %, according to World Bank estimates. This alone can go a long way in boosting the competitiveness of India’s key manufacturing sectors by 3-4 % of net sales. GST, when implemented, will free the decisions on warehousing and distribution from tax considerations, which, henceforth, would be based purely upon operational and logistics efficiency. This will lead to changes in logistics requirements of clients, forcing logistics service providers (LSPs) to rethink their business operations, including creating new warehousing and logistics locations and expanding or closing existing warehouses at certain other locations. GST will score over the existing regime in the transportation and logistics industry, where a tendency is seen to engage with the unorganized players for tax considerations. The GST regime will see the emergence of the organized service providers since taxes will no longer be added costs for the businesses. Given the highly fragmented nature of the Indian transportation and logistics industry (the leading 10 listed firms command less than 5 % of the overall market), implementation of GST is expected to unleash a plethora of opportunities for companies in the organized sector. On financial side, posted a Net Profit (standalone unaudited) of Rs. 35.38 crore posting a strong increase of 40.93 % as compared to Rs. 25.1 crore for the first quarter Q1 FY16 ended June 30, 2015. The Net Profit increased 82.67 % as compared to Rs. 19.37 crore in Q4 FY15. The Total Income from operations increased to Rs. 447.011 crore up 9 % from Rs. 411.36 crore for the quarter. The segment revenue of the Goods transport business increased to Rs. 339.69 crore up 12.66 % in Q1 Fy16. The segment revenue from Bus operations stood at Rs. 94.69 crore in Q1 FY16. The segment revenues from sale of power increased to Rs. 7.1 crore up 10.54 % in Q1 FY16. VRL operates a 42.5MW wind farm in Karnataka, and owns two aircrafts, which provide charter services to corporate clients. The contribution from these non-core businesses remains very small a 1.3 % from wind energy business and 0.7 % from air charter business in FY15. The company came with a successful IPO and those funds would be used mainly for Purchase of goods transportation vehicles and Re-payment/pre-payment of certain borrowings. VRL’s debt totalled Rs. 443 Cr as of FY15, and is expected to decline further as a small component of IPO proceeds approx. Rs. 28 Cr will be used to repay debt. VRL’s ‘net debt to equity ratio’ is expected to fall to almost 0.4 x by FY16 aided by strong free cash flow generation. Despite the industry slowdown, VRL has generated positive FCF in four of the last five years, and we expect FCF generation to continue to improve aided by higher volumes and fleet utilisation. The company plans to spend approximately Rs. 51.8 Cr towards vehicle purchases in FY16. A strong balance sheet provides further headroom for targeting growth. At the current market price of Rs. 370.30, the stock is trading at 28.92 x FY16E. Earnings per share (EPS) of the company for FY16E could be Rs. 12.80 & for FY17E could be seen at Rs. 18.40. It is expected that the company will keep its growth story intact in the coming quarters also with rationalization of haulage charges by IR or Pickup in containerized trade both in EXIM and domestic segment. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

SALES ( Crs)1,493.801,671.201,814.502,073.10
NET PROFIT (₹ Cr)57.0091.20117.00167.50
EPS ()7.2010.7012.8018.40
PE (x)44.3029.8024.8017.30
P/BV (x)8.207.604.903.80
EV/EBITDA (x)13.9011.2010.408.30
ROE (%)18.6025.6019.8022.10
ROCE (%)9.1916.2216.0219.37

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*As the author of this blog I disclose that I do not hold VRL LOGISTICS Ltd in my any of the portfolios.

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  1. Exhaustive coverage...VRL is indeed a trustworthy company.

  2. Well researched and well written.

  3. Good Account detailed about every aspect.

  4. I have followed the logistics industry closely and VRL has come a long way since in India unlike other countries road logistics contributes a bog share. Good analysis there :)


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