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Company Report Industry: MidCaps
Nishna Biyani ([email protected]) +91-22-66322239
Keyur Pandya ([email protected]) +91-22-66322247
VRL Logistics
Gaining grounds...
December 07, 2015 2
VRL Logistics
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Contents
Page No.
What’s making us bullish? .......................................................................................... 4
Best placed amongst domestic listed players ............................................................ 5
Investment Rationale .................................................................................................. 6
Market leader in goods transportation with largest owned truck fleet ............................................ 6 Focused player on high-margin LTL business .................................................................................... 6
Strong cash flows and healthy balance sheet, makes VRL Special .................................................... 7
Company Background ................................................................................................. 8
Management Personnel .................................................................................................................... 8
Industry Dynamics ...................................................................................................... 9
Surface Transportation, dominated by unorganized segment ........................................................ 10 GST can improve volumes for LTL organized operators .................................................................. 12
Business Segments ................................................................................................... 13
GT segment is the focal point contributing 77% of revenues ......................................................... 13 Passenger segment consolidating, focus is on premium routes ..................................................... 14
Air Charter Business ........................................................................................................................ 15 Wind Power Generation Business ................................................................................................... 16
VRL is looking to replicate its LTL business model in other regions ......................... 17
VRL has diverse clientele with no customer concentration ............................................................ 18 Efficient Working Capital Management .......................................................................................... 19
Fuel accounts for 34-37% of total operating costs; efficient cost management holds the key ...... 19 Use of Bio-diesel and lower crude prices to help in sustain margins .............................................. 20
In-house body design facility and maintenance enhances profitability .......................................... 20
Assumptions ............................................................................................................. 21
Financials .................................................................................................................. 22
VRL revenues growing @10.7% CAGR over FY15-FY18E ................................................................. 22
Business mix tilted towards Goods Transportation segment .......................................................... 22 EBITDA Margins bounce back to FY12 levels ................................................................................... 22
Robust operating performance over the past four years ................................................................ 23 IPO well received this time, raised Rs4.7bn in April 2015 ............................................................... 23
Return Ratios and Asset turnover impressive ................................................................................. 24
Valuation and Outlook .............................................................................................. 25
Limited free-float in the sector to command premium................................................................... 26
Risk and Concerns ..................................................................................................... 27
Shortage or non-availability of skilled drivers ................................................................................. 27 Inability to pass on increase in operating cost, particularly fuel price hikes ................................... 27
Outstanding litigations and proceedings against VRL ..................................................................... 27
Annexure ................................................................................................................... 28
Road Safety and Transport Bill, 2014 .............................................................................................. 28
VRL Logistics
Company Report December 07, 2015
Rating BUY
Price Rs429
Target Price Rs534
Implied Upside 24.5%
Sensex 25,638
Nifty 7,782
(Prices as on December 07, 2015)
Trading data
Market Cap. (Rs m) 39,143.5
Shares o/s (m) 91.2
3M Avg. Daily value (Rs m) 148
Major shareholders
Promoters 69.57%
Foreign 10.78%
Domestic Inst. 8.19%
Public & Other 11.46%
Stock Performance
(%) 1M 6M 12M
Absolute 17.6 49.8 NA
Relative 20.6 54.5 NA
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2017 16.6 18.1 -8.2
2018 19.0 21.6 -11.8
Price Performance (RIC: VRLL.BO, BB: VRLL IN)
Source: Bloomberg
0
100
200
300
400
500
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
(Rs)
VRL Logistics (VRL) is the largest pan-India surface logistics and parcel delivery
service provider with an experience of four decades in the Indian markets. The
company owns and operates Pan-India a fleet of Commercial Vehicles (3713) in
goods transportation (GT), while Bus operations (368 buses) are concentrated in
Southern and Western regions of India. VRL provides general parcel and priority
parcel delivery (less than truckload services -LTL), courier and full-truckload (FTL)
services through its widespread transportation network covering more than 1000
locations. VRL is expected to have earnings CAGR of 24% over FY15-FY18E period
led by strong performance in Goods and Transport Segment. However, if reforms
like New Road Transport and Safety Bill & GST Bill gets implemented in time, then
VRL may emerge as a key beneficiary with almost double-digit volume growth as
we anticipate the LTL to garner significant volume shift likely from unorganised to
organised segment. We initiate coverage on VRL with a ‘BUY’ and a TP of Rs534
implying a 28x FY18E PER and 13.2x EV/EBITDA FY18E. The premium is justified
considering: 1) Strong management pedigree with proven track record 2) High
visibility on operating cash-flows 3) Superior returns ratios (above 25% RoE) amidst
listed logistics players 4) Steady margins on the back of lower fuel prices and
efficient use of Bio-diesel and 5) Strong balance sheet (D/E of 0.47x FY16E).
Goods transportation leads business growth, niche play and scale at work:
VRL, over the last decade, has shown impressive execution prowess in
maintaining a large fleet and growing the fleet size @6.3% CAGR to 3713
vehicles, with ~30% fleet addition happening in the last five years alone. The
company’s focus on owning the fleet makes the business asset heavy. However,
it brings in advantages of lower hiring and operational cost, reduced
dependence on third-party vehicles and better control over time-bound
delivery. Andhra Pradesh and Telengana is its stronghold with ~20% of
branches/agencies in these two states alone. VRL intends to expand its network
in Northern and Eastern region over the next couple of years.
Key financials (Y/e March) 2015 2016 2017E 2018E
Revenues (Rs m) 16,712 18,151 20,417 22,617
Growth (%) 11.9 8.6 12.5 10.8
EBITDA (Rs m) 2,728 3,213 3,461 3,777
PAT (Rs m) 912 1,276 1,513 1,738
EPS (Rs) 10.7 14.0 16.6 19.0
Growth (%) 60.0 31.1 18.6 14.8
Net DPS (Rs) 4.0 5.0 5.7 6.7
Profitability & Valuation 2015 2016 2017E 2018E
EBITDA margin (%) 16.3 17.7 16.9 16.7
RoE (%) 27.5 28.3 25.6 25.3
RoCE (%) 15.8 19.6 20.4 21.1
EV / sales (x) 2.5 2.3 2.0 1.8
EV / EBITDA (x) 15.0 12.9 11.8 10.6
PE (x) 40.3 30.7 25.9 22.5
P / BV (x) 10.3 7.2 6.2 5.3
Net dividend yield (%) 0.9 1.2 1.3 1.6
Source: Company Data; PL Research
VRL Logistics
December 07, 2015 4
What’s making us bullish?
Exhibit 1: VRL has grown its fleet at a CAGR of 12%, but revenues grew faster at 24% over the last 20 yrs
-
5,000
10,000
15,000
20,000
FY95 FY01 FY06 FY11 FY15
Turnover (Rs. m) Fleet Size (No) (RHS)
Source: Company Data, PL Research
Exhibit 2: Asset Turnover above 2.5x in Goods Transport segment
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
FY07 FY09 FY12 FY13 FY15
Asset Turnover (x)
Source: Company Data, PL Research
Exhibit 3: Most efficient working capital management amongst peers
20
6659
0
10
20
30
40
50
60
70
VRL Transport Corp Gati
Receivable days for FY15
Source: Company Data, PL Research
Exhibit 4: VRL’s growth has come at healthy Return Ratios
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY15 FY16E FY17E FY18E
(%)
RoE RoCE
Source: Company Data, PL Research
Exhibit 5: Operating cash flows looks robust with decent visibility
0
500
1000
1500
2000
2500
3000
FY14 FY15E FY16E FY17E FY18E
(Rs
m)
Operating Cash Flows
Source: Company Data, PL Research
Exhibit 6: Debt inching down, Balance sheet strong with D/E of 0.47x FY16E
0.00
0.50
1.00
1.50
2.00
2.50
3.00
0
1000
2000
3000
4000
5000
6000
7000
FY12 FY13 FY14 FY15 FY16E
Total Debt (Rs m) Debt/Equity Ratio (x) (RHS)
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 5
Best placed amongst domestic listed players
VRL compares well with Transport Corp (TCIL) in Freight, Express and Supply chain divisions in
surface transportation. While, VRL is an asset-heavy model where it owns fleet, TCIL is more
focused on third-party trucks. VRL segment capital employed is, thus, deployed to own assets,
whereas TCIL capital employed is mostly working capital. VRL, thus, commands higher margins
than TCIL as it has lower hired lorry charges. Even after owning assets, VRL RoCE is 16% vis-à-
vis 12% of TCIL
Exhibit 7: VRL Vs TCIL a Snapshot in similar business operations
VRL *TCIL
Owned Fleet 3,500 ~1200
Hired Fleet (approx) 360 5,800
Own Fleet/Hired Fleet ratio 0.88 0.17
Receivable days (Consolidated) FY15 20 66
Full Truck Load (FTL) 11% ~65%
Less Than Truck Load (LTL) 89% ~35%
EBIT margins (H1FY16) 12.7% 4.5%
Capital Employed (Rs M) 4,277 5,386
Locations covered 1,000 1,500
Segment Revenues (H1FY16) (Rs M) 6,824 10,410
Source: Company Data, PL Estimates * Freight, Express & Supply chain division included
VRL’s earnings are expected to grow faster than the industry and with sustained
margins over foreseeable future. RoEs above 25% and a dividend Payout ratio of 30-
35% are impressive which emphasises management focus on profitable growth and
creating value for stakeholders.
Exhibit 8: Comparative Financials of key surface logistics players in India (Rs m)
VRL Transport Corporation Gati Ltd
FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E
Revenue 16,712 18,151 20,417 24,167 27,059 31,105 16,481 18,910 22,056
EBITDA 2,728 3,213 3,461 1,974 2,231 2,642 1,412 1,420 1,768
Margin (%) 16.3 17.7 17.0 8.2 8.5 8.8 8.6 7.5 8.0
PAT 912 1,276 1,513 814 1,01 1,215 412 416 554
RoE (%) 27.5 28.3 25.6 14.6 18.3 19.3 6.2 7.4 9.2
EV 40,123 27,829 19,371
Source: Company Data, Bloomberg, PL Research
VRL focuses on asset owning and leverage
on its distribution vis-à-vis other industry
participants.
VRL Logistics
December 07, 2015 6
Investment Rationale
Market leader in goods transportation with largest owned truck fleet
VRL is the market leader in GT segment with ownership of 4081 CVs which includes
3713 GT Vehicles & 368 buses. VRL has strong presence in the Southern and Western
markets (~80% of business revenues) and intends to replicate its LTL model in the
Northern and Eastern markets over the next 2-3 years. Given the sheer size of the
market, we feel the growth opportunity for an organised and process driven player
like VRL is huge. Further, as a large fleet operator, VRL benefits from scale and
higher control over key operational levers which include freight rates, fuel costs,
fleet utilisation and load flexibility.
Exhibit 9: GT Business has grown @16% CAGR for past 10 yrs
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY06 FY09 FY12 FY15
GT Revenues (Rs m) EBIT Margins (RHS)
Source: Company Data, PL Research
Exhibit 10: Vehicle Split varies from 1T to 32T capacities helping to cater different business needs
883 883 882 975 1002
1916 1941 22102423 2460
0
1000
2000
3000
4000
FY12 FY13 FY14 FY15 H1FY16
LCV HCV Tanker & Cranes Car Carriers
Source: Company Data, PL Research
Focused player on high-margin LTL business
VRL has adopted a differentiated consignee-driven business model with a focus on
the high-margin LTL business. The company primarily caters to the requirement of
small and mid-sized customers who are not serviced by large players due to their
small cargoes. VRL’s widespread network of collection and delivery points enables it
to service a larger number of customers across different geographies. This reduces
its reliance on few large customers and thereby, the business concentration risk. The
India-wide network of collection and delivery points and its strategically located
transhipment hubs have enabled VRL to focus on the attractive LTL business. The LTL
service offers higher rates per load compared to the FTL service as it involves
consolidation and transportation of freight from numerous customers to multiple
destinations and, thus, generates higher net revenue per vehicle.
Focus on LTL has helped VRL record better
profitability when compared to other large
organised players who largely focus on the
FTL business
VRL Logistics
December 07, 2015 7
Exhibit 11: LTL forms almost 78% of GT segment revenues
6,865 7,766 9,063 10,050
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY12 FY13 FY14 FY15
(Rs
m)
LTL FTL Priority Parcel Courier , Car and Liquid Transit
Source: Company Data, PL Research
Strong cash flows and healthy balance sheet, makes VRL Special
VRL has generated operating cash flows of Rs7.6bn during FY12-FY15 despite
subdued volume growth and tough operating environment. The next three years are
looking even stronger with operating cash flows expected to average Rs2.6bn/year.
VRL currently is in a sweet spot with strong balance sheet (D/E ratio of 0.47x FY16E)
and improving Return ratios. Considering capex of Rs1bn/yr and no working capital
requirements, VRL is a strong franchise which can be debt-free over the next three
years.
Exhibit 12: Return ratios looks impressive
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY13 FY14 FY15 FY16E FY17E FY18E
(%)
RoE RoCE
Source: Company Data, PL Research
Exhibit 13: D/E ratio inching lower
0.00
0.50
1.00
1.50
2.00
FY13 FY14 FY15 FY16E FY17E FY18E
(x)
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 8
Company Background
VRL was founded in 1976 by Dr. Vijay Sankeshwar in Gadag, a small town in North
Karnataka with a single truck. VRL gradually expanded its services to Bengaluru,
Hubli and Belgaum. From this humble beginning, VRL has today grown into a
nationally renowned logistics and transport company which is also currently the
largest fleet owner of commercial vehicles in India with a fleet of 4081 Vehicles
(Including 368 Passenger Transport Vehicles & 3713 Goods Transport Vehicles
amongst others). Mr. Vijay Sankeshwar has been joined by his son Mr. Anand
Sankeshwar now for over a decade, which brings in newer strategies to further drive
the growth of the company.
Over the years, VRL has pioneered in providing a safe and reliable delivery network
in the field of parcel service. The company has spread its operations to Courier
Service, Priority Cargo & Air Chartering to meet the growing demands of its
burgeoning customer base.
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 transhipment hubs. The network spans across 1015 Branches
and franchisees to cater to the remotest locations of the country.
Management Personnel
Dr. Vijay Sankeshwar, CMD - Dr. Vijay Sankeshwar is actively involved in the
day-to-day affairs of the company as a Whole Time Director. He is a former
member of parliament. He was also part of Committee of Finance, Committee of
Transport and Tourism etc. in the past. He has an industry experience of over
three decades and has received many awards for contribution to the logistics
sector.
Mr. Anand Sankeshwar, Joint MD - Mr. Anand Sankeshwar, aged 42 years, is a
graduate in Commerce from Karnataka University, Dharwad. He is associated
with VRL for more than twenty years and is active MD of the company since
2005. He directly oversees the finance and marketing function of the Company.
He has 14 years of experience in the media industry as well and is also MD in
VRL Media which is carrying Printing and Publication of Kannada daily
Newspaper under the brand name of “VIJAYAVANI”
Mr. Sunil Nalavadi, CFO - Mr. Sunil Nalavadi, aged 37 years, is the Chief
Financial Officer of the Company. He holds a bachelor’s degree in commerce
from the Karnataka University, Dharwad and is a qualified associate of the
Institute of Chartered Accountants of India. He is with VRL for almost a decade
now.
Exhibit 14: About The Company
Employees ~17000
Geographical Reach 28 States, 4 Union territories
Strong Regions South and West
Cities Covered 662
Transshipment Hubs 48
Touch Points 1015
Owned branches 20
Fleet Size 3713 CVs
368 PVs
Petrol Pumps 2 ( in Karnataka)
Source: Company Data, PL Research
Exhibit 15: Key Shareholders
Major Share Holders % Share Holding
Vijay Sankeshwar 34.8
Anand Sankeshwar 34.3
New Silk Route PE 5.2
Goldman Sachs 4.4
Ashoka PTE 2.3
HDFC AMC 1.7
Vani Sankeshwar 0.4
Source: Bloomberg, PL Research
VRL Logistics
December 07, 2015 9
Industry Dynamics
The domestic freight transportation industry is largely dominated by road transport.
However, this segment is highly fragmented and dominated by large number of
small players. This provides consumers with high bargaining power and intensifies
competition amongst them. The industry broadly consists of transport operators,
intermediaries, brokers and consignors or end-users. In India, road freight
constitutes around 63-65% of the total freight movement which consists of ~2.2m
heavy duty trucks and 0.6m light duty trucks.
Despite being an economical mode of transport, railways has lost market share in
freight movement to roads primarily on three counts: 1) Govt impetus on improving
road connectivity 2) Cost effectiveness and flexibility on Road and 3) Capacity
constraints and poor quality of service in railways.
Exhibit 16: Share of Roadways dominate total freight traffic movement
0
20
40
60
80
100
Rail (% Share) Road (% Share)
Source: Ministry of Road Transport and Highways, PL Research *(GDP = 6.9 per cent)
Exhibit 17: Share of Transport in Public Sector Expenditure in different Five-Year Plans since independence
0
20
40
60
-
2,000
4,000
6,000
8,000
19
51-
85
19
85-
90
19
92-
97
19
97-
02
20
02-
07
20
07-
12
Total Transport Sector (LHS)**Railways (% of Total)Roads (% of Total)
Source: Planning Commission 2013, PL Research ** (At Current Prices in Rs bn)
The freight transport market is driven mostly by the rapid growth in industries such
as automobiles, pharmaceuticals, FMCG and retail; increase in trade of chemicals,
Textiles, and miscellaneous products with the world & government initiatives in
development of logistics infrastructure. However, sluggish economic activity and
poor monsoon for the past two years have impacted growth of the freight transport
business to some extent. But considering a decisive government mandate and clear
message of spurring investments in infrastructure, we feel IIP numbers and GDP
growth are looking up over the foreseeable future. According to the published
estimates of IMF in Oct 2015, Indian GDP growth is expected to grow @7.3% in 2015
and 7.5% in 2016. This augurs well for the logistics sector at large which grows at a
multiple of 1.2-1.5x of GDP growth.
Railways capacity in both freight and
passenger traffic has not increased enough
simply due to inadequate investment when
compared to road. Also, profitability of
freight division in railways is used to
subsidize the passenger movement
VRL Logistics
December 07, 2015 10
Exhibit 18: IIP numbers clearly showing signs of bottoming out
-10
-5
0
5
10
15
20
No
v-0
9
Ap
r-1
0
Sep
-10
Feb
-11
Jul-
11
Dec
-11
May
-12
Oct
-12
Mar
-13
Au
g-1
3
Jan
-14
Jun
-14
No
v-1
4
Ap
r-1
5
Sep
-15
(%)
Source: Bloomberg, PL Research
Exhibit 19: GDP growth looking to inch higher
0123456789
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
(%)
Source: Bloomberg, PL Research
Unlike other modes of transport, roads address the demand for goods to cities as
well as remote areas of the country. Since 1999-2000, road freight has increased
from 467 billion tonne kilometres (BTKM) to 1,250 BTKM in 2011-12, at a CAGR of
8.6%. According to the Ministry of Road Transport and Highways, road freight is
expected to reach 1,987 BTKMs by 2016-17E, a CAGR growth of 9.8%.
Exhibit 20: Road transportation freight movement in BTKM is growing @9.8% for past 12 yrs
0
500
1000
1500
2000
2500
1970-71 1990-91 2004-05 2011-12 2016-17E*
(Bn
to
nn
es
km
)
Source: National Transport Development Policy Committee, PL Research
Surface Transportation, dominated by unorganized segment
The transport operators are broadly classified as small fleet operators (SFOs),
medium fleet operators (MFOs) and large fleet operators (LFOs). Road freight
transport due to its highly fragmented nature is dominated by small operators
having 65-70% share. However, SFOs have very restricted geographical reach as
compared to LFOs who enjoy nationwide presence. LFOs are preferred by large
corporate due to their reach, service quality and timely delivery. Introduction of GST
can further accelerate this trend as the price differential in freight rates will narrow
down between organized and unorganized segment.
At the simplest level, roads provide basic
accessibility to the rest of the world. No
other piece of transport infrastructure can
replace the street outside one’s home
VRL Logistics
December 07, 2015 11
Exhibit 21: LFOs gain share over the past three decades but SFOs still dominant
9885
77 74 67
213
1715
15
2 6 11 18
0
20
40
60
80
100
1978-79 1993-94 2002-03 2008-09 2014-15E
( % )
SFO MFO LFO
Source: Company Data, PL Research
Exhibit 22: Forces which impacts Road Freight
Source: Company Data, PL Research
Forces impacting
Road Freight
Threat of New Entrant - HIGH
Initital Investment of Rs.3-5lacs with LTV ratio upto 90%
Easy licensing availability
Labour with basic skills are required
Threat of Substitutes - LOW
Other modes like Rail, Air and Waterway can be substitutes
Due to last mile connectivity and supply constraints, rail isn't a large threat in the short term
Lower fuel prices favours road over other modes
Bargaining Power of Cutomers - HIGH
Large consigners and organisations have better bargaining power due to bulk volumes
Due to unorganized nature of business, pricing remains the key to garner business
Bargaining Power of Suppliers - LOW to MODERATE
As the fuel prices are market determined, there isn't much to bargain for both the parties
Transporters with larger share of outsourced truck have less bargaining power, especially in peak seasons
Transporters which own fleet have better bargaining power on bulk purchases
Rivalry Among Exisiting Players - MODERATE
Lack of any USP makes price the only differentiator
Unorganized players resort to price cutting to attain higher utilization
LFOs face less of price rivalry but more focus is on quality of service
SFOs are small fleet operators owning up
to five vehicles, MFOs are medium fleet
operators owning between six and twenty
vehicles whereas LFOs are large fleet
operators owning more than twenty trucks
VRL Logistics
December 07, 2015 12
GST can improve volumes for LTL organized operators
Goods and Service Tax (GST) is expected to change the existing indirect tax structure
in India. Under existing structure, industry is levied tax both at centre (Excise, Service
Tax etc.) as well as state level (VAT, Octroi, Sales Tax etc). This double taxation has
forced companies to keep their warehouses in multiple cities across different states.
Under proposed GST, tax will be levied by both centre and state simultaneously
with easy mechanism of input tax credit.
With GST, 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
points of sale. These large warehouses will help organised players like VRL to
position themselves as one point solution providers across the warehouses of
companies. This shall also shift volumes from the unorganised sector which thrives
on small inter-city routes in different states towards the organised sector.
Waiting time for trucks to go down: While most states have replaced the octroi
gates (on city borders) with a local body tax (LBT), it has still not reduced the waiting
time for vehicles. Similarly, at check posts on state borders, different requirements
for documentation and tax payment lead to considerable delays. However, post GST,
the waiting time for trucks is expected to reduce significantly which may result in
higher utilization of trucks for goods transit rather than waiting at check posts.
VRL is well positioned to benefit from GST
implementation and already holds
leadership position in the LTL freight
movement in India
On an average, a truck is idling for 25% of
times waiting at different check-posts across
India for documentation requirements and tax
payments.
VRL Logistics
December 07, 2015 13
Business Segments
VRL primarily operates in two business segments, namely, Goods Transportation
(GT) and Passenger Transportation (BT).
GT segment is the focal point contributing 77% of revenues
VRL offers services for transportation of goods across India to its customers using
LTL, FTL and priority services. The company owns 3713 commercial vehicles covering
all major cities and towns spread across 28 States & four Union Territories. It has an
extensive network with nearly 1000 plus branches and franchisees that enables it to
provide connectivity covering most remote locations as well. The branch network is
further complemented by 48 strategically located transhipment hubs.
The GT business is broadly divided into General Parcel and Priority parcel. General
Parcel basically caters to godown-to-godown movement of consignments across the
country and is mainly used by wholesalers, retailers and other non-corporate
entities. VRL Priority caters to door-to-door movement of consignments and this
service is mainly availed by corporate customers. The other verticals include car
carrying, liquid transportation and courier activities.
Exhibit 23: GT Business is further divided into four segments, general parcel dominates
Segment Description % Contribution to GT revenues for FY15
General parcel It primarily includes godown-to-godown movement of goods 77.9%
Priority Parcel It involves door-to-door movement of cargo 7.7%
Full Truck Load Caters in regions and routes to optimize return traffic 10.6%
Others It include car carrying, liquid transportation and courier activities 3.8%
Source: Company Data, PL Research
Exhibit 24: Fleet Split end of period
Small
Vehicle LCV HCV
Car Carrier
Tanker Cranes Total
Vehicles
FY11 171 892 1575 0 7 10 2655
FY12 139 883 1916 102 27 12 3079
FY13 122 883 1941 102 27 13 3088
FY14 122 882 2210 102 23 13 3352
FY15 120 975 2423 102 16 13 3649
H1FY16 119 1002 2460 102 17 13 3713
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 14
Exhibit 25: Revenue Split of VRL across different business segments
-
5,000
10,000
15,000
20,000
25,000
FY14 FY15 FY16E FY17E FY18E
(Rs
m)
Goods Transport Bus Operations Wind Power Air Charter
75.9% 77.2% 78.2% 78.9% 80.4%
75.9% 77.2% 78.2% 78.9%
20.7%19.8%
18.9%
18.5%17.2%
Source: Company Data, PL Research
Passenger segment consolidating, focus is on premium routes
VRL operates passenger buses in high density urban markets such as Bengaluru,
Mumbai, Pune, Hyderabad, Ahmedabad, Jodhpur & Panjim. It also connects
metropolitan and Tier-II cities such as Hubballi, Dharwad, Hospet, Mangalore,
Bagalkot, and Bhatkal. VRL has pioneered the country’s largest commercial bus route
of nearly 2,000 km, from Bengaluru to Jodhpur. The passenger transportation
business operates in the key states of Karnataka, Maharashtra, Andhra Pradesh,
Telangana, Tamil Nadu, Gujarat, Rajasthan and Goa through its fleet of 368 buses.
This division operates through 81 branches (74 lease and 7 owned), 739 franchisees,
including web agents and 416 prepaid. Bus operations contributed 19.8% of overall
revenues in FY15.
Exhibit 26: VRL’s key bus routes
Bengaluru-Ahmedabad Bijapur-Bengaluru Hospet-Mumbai
Bengaluru-Jodhpur Bengaluru-Mangalore Belgaum-Bengaluru
Hubballi-Bengaluru Bengaluru-Goa Belgaum-Mumbai
Hubballi-Mumbai Bengaluru-Shirdi Belgaum-Pune
Mumbai-Bengaluru Hubballi-Pune Hyderabad-Goa
Mumbai-Mangalore Bijapur-Bengaluru Hyderabad-Mangalore
Bidar-Bengaluru Hopset-Bengaluru Hyderabad-Bengaluru
Gulbarga-Mangalore Goa-Mumbai Hyderabad-Mumbai
Gulbarga-Bengaluru Pune-Nagpur Hyderabad-Shirdi
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 15
Exhibit 27: Revenues strong despite fall in fleet implies focus on premium routes
0
100
200
300
400
500
600
0
500
1000
1500
2000
2500
3000
3500
4000
4500
FY13 FY14 FY15 FY16E FY17E FY18E
Total Bus Segment Reveneus (Rs m) Total Buses (RHS)
Source: Company Data, PL Research
VRL has become leaner by 100 buses over the past one year primarily due to a
conscious decision to let bus permits expire and wait for the New Road and Safety
transport bill to be passed. The Bill proposes a unified vehicle registration system like
the commercial vehicles and simpler online transfers of vehicles across various
States in India, which will significantly improve operating efficiencies and reduce
operational costs for the passenger transportation segment. This is expected to
make the inter-state passenger transport smoother and efficient, as compared to
current complex and restrictive rules.
Air Charter Business
VRL entered the air charter business in 2008 by purchasing a new Premier 1A aircraft
from Hawker Beechcraft Inc., USA. The Premier 1A aircraft is a twin engine
sophisticated aircraft with space for two pilots and six passengers. Further in 2013,
VRL purchased a second hand aircraft from M/s Force Motors, Pune for a
consideration of Rs120m. VRL offers charter services, bulk-charters or any
customized requirement and offer services to individuals, corporate clients and
Government of Karnataka. Most of management travels and allied expenses are a
part of this division. Capital employed in this division is Rs378m and it has generated
revenues of Rs51m and EBIT of Rs (17m) for H1FY16.
Exhibit 28: Air Charter business Snapshot
Air charter Business FY14 FY15 H1FY16
Revenues 78 117 51
EBIT (21) (23) (17)
No of aircrafts 2
Capital Employed Rs 378m
Source: Company Data, PL Research
Currently, VRL is concentrating on
premium routes connecting major cities to
perk up the realization and utilization
VRL Logistics
December 07, 2015 16
Wind Power Generation Business
In 2006 VRL commenced its wind power business in Southern India at Kappatgudda,
Gadag district in Karnataka by setting up a wind farm of 42.5MW. The wind farm
consists of 34 Wind Turbine Generators (WTGs) having individual capacity of
1.25MW. The turbines are of S66 technology developed by Suzlon Energy and the
power generated is sold to Hubli Electricity Supply Company (HESCOM) under six
Power Purchase Agreements (PPAs). The project is registered with United Nations
Framework Convention on Climate Change (UNFCCC) and necessary approvals for
the trade of carbon credits have been procured.
Exhibit 29: Wind Power Business Snapshot
Wind Power FY14 FY15 H1FY16
Revenues 250 222 166
CER 61 - -
EBIT 71 48 84
Power Capacity 42.5 MW
Capital Employed Rs 1259m
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 17
VRL is looking to replicate its LTL business model in other regions
VRL has adopted a differentiated consignee-driven business model with a focus on
the high-margin LTL business. It primarily caters to the requirement of small and
mid-sized customers. VRL’s widespread network of collection and delivery points
enables it to serve a larger number of customers across different geographies. VRL
has strong presence in the Southern and Western markets (~65% of originating
business revenues). Over the next 2-3 years, it is planning to replicate its LTL model
in the Northern and Eastern markets as well.
Exhibit 30: VRL has strong foothold in the South and West market, Focus is to enhance reach in Northern and Eastern markets
Source: Company Data, PL Research
South
Agencies 202
Branches 391
Transshipment Hubs 29
West
Agencies 81
Branches 119
Transshipment Hubs 10
East
Agencies 7
Branches 38
Transshipment Hubs 3
North
Agencies 56
Branches 76
Transshipment Hubs 6
VRL Logistics
December 07, 2015 18
VRL has diverse clientele with no customer concentration
VRL services customers across a wide range of industries which include
Pharmaceuticals, FMCG, Paper, Wood, Automotive parts & machinery, Plastics,
Appliances, Furniture, Metal & Metal products etc. In the Goods transport business
for FY15, the client concentration is relatively low, with the largest customer and top
10 customers accounting for only 1.1% and 6.1% of revenues, respectively. VRL has a
strong recovery system with bad debts not exceeding Rs1m a year for the past five
years. In addition, working capital requirement has moved down from 25 days in
FY12 to 20 days in FY15.
Exhibit 31: VRL’s caters across wide range of industries
Source: Company Data, PL Research
Exhibit 32: Revenue Contribution from the largest and Top Ten Customers
1.3 1.50.9 1.1
5.1 5.3 5.46.1
0.0
2.0
4.0
6.0
8.0
10.0
2012 2013 2014 9MFY15
(%)
Largest Customer Top 10 Customers
Source: Company DRHP, PL Research
VRL
Pharma
Plastics
Machinery
Automotive Wood
Paper
FMCG
VRL Logistics
December 07, 2015 19
Efficient Working Capital Management
VRL runs a process driven business and is always selective in choosing freight on their business terms. It has strong internal systems to ensure that collection mechanism is robust and they do not have to compromise in any manner. This has resulted in lower receivable days for VRL as compared to industry players, which again reinforces the fact that it does not compromise on its business principles even if it results in sub-par revenue growth for some time. ~70% of business in GT segment does not require any working capital.
Exhibit 33: Receivables tilted towards upfront payments
11 11 11 12
58 56 59 57
23 22 18 17
8 11 11 14
-
20
40
60
80
100
FY12 FY13 FY14 FY15
(%)
Paid Option To Pay Option Ongoing accounts Others
Source: Company Data, PL Research
Fuel accounts for 34-37% of total operating costs; efficient cost management holds the key
Fuel cost is an important element which constitutes ~34-37% of total operating costs. Out of the total requirement of ~2,50,000 litres/day, VRL gets ~60% fuel from IOCL. Further, VRL owns two fuel stations in Karnataka which constitutes ~25% of fuel requirement. Also, they have tied up with IOCL across 80-100 locations in India and drivers are required to purchase fuel from these company designated fuel pumps only during transit.
Exhibit 34: Split of operating costs amongst various constituents (FY15)
Vehicle operation-diesel cost
38%
Lorry hire11%
Vehicle running, repairs &
maintenance10%
Bridge and toll charges
8%
Rent6%
Agency commission
5%
Hamaali5%
Stores and spares consumed
4%
Clearing and forwarding
3%
Tyres, flaps and re-treading
4%
Vehicle taxes3%
Others3%
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 20
Use of Bio-diesel and lower crude prices to help in sustain margins
VRL has started blending Bio-diesel for both Passenger and Goods Transportation
business in FY16. It started with 12.5% blending in Q1FY16 and has gradually ramped
it up to optimum levels of ~36% in Q2FY16. This has reduced the fuel cost per litre by
~Rs4-5, resulting in almost 200bps savings in fuel costs. However, savings from lower
fuel costs in H1FY16 were netted off against high employees cost.
Exhibit 35: Diesel price Movement (in Rs)
20.0
30.0
40.0
50.0
60.0
70.0
Ap
r-0
2
Ap
r-0
3
Ap
r-0
4
Ap
r-0
5
Ap
r-0
6
Ap
r-0
7
Ap
r-0
8
Ap
r-0
9
Ap
r-1
0
Ap
r-1
1
Ap
r-1
2
Ap
r-1
3
Ap
r-1
4
Ap
r-1
5
Source: IOCL Website, PL Research
Exhibit 36: Crude movement USD
0
20
40
60
80
100
120
140
160
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
No
v-0
7
No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
No
v-1
3
No
v-1
4
No
v-1
5
Source: Bloomberg, PL Research
In-house body design facility and maintenance enhances profitability
VRL has in-house body design facility at Hubli where it buys chassis from the
manufacturer and fabricates the vehicles with lighter and longer bodies which
reduces the overall weight of the vehicle and ensure higher payloads without
violating permissible payload limit. VRL also has two major workshops in Hubli where
all the major servicing is done.
Ashok Leyland & VE commercial (Volvo) have established their own spare parts yard
in VRL’s premises, resulting in procurement of spare parts directly from
manufacturers at factory rates and saving on carrying cost. Further, company has
arrangement with Michelin India and CEAT which allows it to get tyres at ~7-8%
cheaper than the retail selling price.
VRL has devised an innovative way to
control its fuel cost by rewarding those
drivers in cash incentives who consume less
fuel than estimated by VRL on a particular
route
VRL has focussed on cutting cost by
sourcing spare parts and Tyres from OEMs
at discounted rates. Also, most of the fleet
maintenance is carried in-house which not
only curtail costs but also enhances fleet
life
VRL Logistics
December 07, 2015 21
Assumptions
Exhibit 37: Assumptions (Rs m)
Y/e March FY13 FY14 FY15 FY16E FY17E FY18E
Goods Transport Revenues 9,923 11,334 12,908 14,132 16,025 18,093
Fleet Size 2,946 3,214 3,518 3,718 3,958 4,238
Additions per year 8 268 304 200 240 280
Revenue/Tonne (Rs) 4,200 4,710 4,967 5,254 5,517 5,792
Volume Growth 1.7% 1.8% 8.0% 3.5% 8.0% 8.0%
Realization Growth 13.0% 12.2% 5.4% 5.8% 5.0% 5.0%
EBIT Margins 10.1% 11.0% 12.9% 13.5% 13.0% 12.7%
Bus Transport Revenues 2,848 3,091 3,316 3,406 3,759 3,872
Fleet Size 460 477 375 368 380 385
Additions per year 37 17 (102) (7) 12 5
EBIT Margins 6.6% 0.7% 10.9% 13.5% 12.5% 13.0%
Tax Rate 28.1% 25.7% 33.8% 33.0% 32.0% 32.0%
Diesel Cost (Rs/litre) 48.4 56.5 59.7 54.0 57.0 60.0
Segment overview
Revenues
Goods Transport Business 9,923 11,334 12,908 14,132 16,025 18,093
Passenger Transport 2,848 3,091 3,316 3,406 3,759 3,872
Segment EBIT
Goods Transport Business 1,003 1,251 1,670 1,908 2,083 2,298
Passenger Transport 187 23 362 460 470 503
Capital Employed
Goods Transport Business 4,127 4,395 4,912 5,177 5,542 6,017
Passenger Transport 1,742 1,537 1,318 1,150 1,200 1,250
Wind Power 1,469 1,370 1,256 1,142 1,027 913
Air chartering service 251 382 358 339 320 301
Un-allocable assets 2,063 2,092 1,687 1,700 1,650 1,600
Segment RoCE
Goods Transport Business 17.5% 21.1% 22.5% 24.7% 25.6% 26.0%
Passenger Transport 7.7% 1.1% 18.2% 26.8% 26.6% 27.4%
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 22
Financials
VRL revenues growing @10.7% CAGR over FY15-FY18E
VRL is expected to grow revenues @10.7% over FY15-FY18E, primarily on the back of
12% growth in GT segment and 6% growth in BT segment. GT segment is expected to
benefit from sustained volume recovery with improved road infrastructure and fleet
addition of ~720 trucks over FY16-FY18E period. We have not yet factored in
significant ramp-up in BT segment since VRL is only concentrating on profitable
routes and is consolidating its Bus operations.
Exhibit 38: GT Business looking strong over FY15-FY18E period
0.0%
5.0%
10.0%
15.0%
-
5,000
10,000
15,000
20,000
FY13 FY14 FY15 FY16E FY17E FY18E
Revenues (Rs m) EBIT Margin (RHS)
Source: Company Data, PL Research
Exhibit 39: BT segment consolidating, margins inching higher
0.0%
5.0%
10.0%
15.0%
-
1,000
2,000
3,000
4,000
5,000
FY13 FY14 FY15 FY16E FY17E FY18E
Revenues (Rs m) EBIT Margin (RHS)
Source: Company Data, PL Research
Business mix tilted towards Goods Transportation segment
VRL derives 77% of its revenues from Goods Transportation segment and 20% from
Passenger Transportation, while wind power generation, air charter operation and
other contribute 1.35%, 0.7% and 0.9%, respectively. LTL contributes 86% of the
Goods Transport segment, while remaining is contributed by FTL, Car Carrier, Liquid
Transport and Courier service
EBITDA Margins bounce back to FY12 levels
VRL has always strived to optimize revenues and curtail operating costs by investing
in technology, in-house facilities for body building and maintenance, operate fuel
pumps, tie-up with IOCL for fuel refilling and use of Bio-diesel. However margins
slipped in FY13-FY14 owing to the Telangana stir and rapid rise of diesel prices which
were not being passed to the end customers entirely because of overall slag in
economic activity. With normalization returning back in Telangana, margins have
recovered back to FY12 levels. VRL currently is focusing on LTL business which
ensures optimum utilization of fleet and ensures higher margins than the traditional
FTL business.
VRL Logistics
December 07, 2015 23
Exhibit 40: EBITDA and OPM over FY12-FY18E Period
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
EBITDA (Rs m) Margin (RHS)
Source: Company Data, PL Research
Robust operating performance over the past four years
VRL has generated operating cash flows of Rs7.6bn during FY12-FY15 despite
subdued volume growth and tough operating environment. These were used to
create assets worth Rs4.7bn and debt repayment of Rs1.85bn over the same period.
With Rs1.17bn raised from the IPO and capex program of Rs1bn for FY16, VRL is a
strong franchise which can be debt-free over the next three years.
Exhibit 41: Operating Cash flows averaging Rs 2.6bn/yr for next 3 yrs
-
500
1,000
1,500
2,000
2,500
3,000
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
(Rs
m)
Avg. Rs2.6bn
Source: Company Data, PL Research
Exhibit 42: Debt inching down over FY14-FY18E period
-
1,000
2,000
3,000
4,000
5,000
6,000
FY14 FY15 FY16E FY17E FY18E
(Rs
m)
Source: Company Data, PL Research
IPO well received this time, raised Rs4.7bn in April 2015
VRL raised Rs4.7bn through an IPO route in April, 2015 which included Rs1.17bn of
fresh issue and Rs3.5bn of offer for sale from promoters (Rs0.5bn) and New Silk
Route PE (Rs3bn) at a price of Rs205/share. The object of the issue was to purchase
goods transportation vehicle of ~Rs674m and repayment of borrowing worth
~Rs280m. VRL has repaid debt out of the said proceeds and purchased vehicles
worth Rs230m till H1FY16.
VRL Logistics
December 07, 2015 24
Return Ratios and Asset turnover impressive
VRL’s return ratios are amongst the best in listed logistics space with RoE in excess of
25%. Optimum utilization of fleet in GT segment and focus on premium routes in BT
segment has enabled VRL to report healthy return on investment. Asset turnover,
too, over the years have been above 2x which re-enforces confidence in the hub-
spoke model and optimum utilization of fleet infrastructure.
Exhibit 43: Return Ratios continue to impress
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY14 FY15 FY16E FY17E FY18E
RoAE (%) RoACE (%)
Source: Company Data, PL Research
Exhibit 44: Asset turnover above 2x for the GT and BT business
0.00
0.50
1.00
1.50
2.00
2.50
3.00
FY14 FY15 FY16E FY17E FY18E
(x)
Avg. 2.19x
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 25
Valuation and Outlook
VRL is expected to almost double its earnings over FY15-FY18E period led by strong
performance in Goods and Transport Segment. However, if reforms like new Road
Transport and Safety Bill and GST Bill get passed in time, then VRL may emerge as a
key beneficiary with almost double-digit volume growth as we anticipate the LTL to
garner significant volume shift happening from unorganised to organised segment.
We expect VRL to have a payout of ~35% as operating cash flows remain strong and
capex requirements ease off. We initiate coverage on VRL with a ‘BUY’ and a TP of
Rs534, implying a 28x FY18E PER and 13.2x EV/EBITDA FY18E. The premium is
justified considering:
Strong management pedigree with proven track record
High visibility on operating cash-flows and high dividend payout ratio
Superior returns ratios amidst listed logistics players
Efficient working capital management
Margin improvement due to lower fuel prices and efficient use of Bio-diesel
Strong balance sheet to leverage emerging opportunities in logistics space.
Exhibit 45: Comparative Valuation
COMPANY Mcap
(Rs bn)
Sales (Rs Bn) PE (x) RoE (%) EV/EBITDA (x) FY15-FY17E CAGR (%)
FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Sales EBITDA PAT
Road Freight
Blue Dart 169 22.7 27.4 33.7 130.8 88.0 64.4 27.2 50.2 51.6 76.5 50.3 38.3 21.8 41.3 43.1
VRL Logistics 40 16.7 18.2 20.4 40.2 30.7 25.9 27.5 28.3 25.6 14.7 12.5 11.6 10.5 12.6 28.8
Transport Corp 25 24.2 27.1 31.1 29.7 24.7 20.5 14.6 18.3 19.3 14.1 12.5 10.5 13.4 15.7 22.2
GATI 15 16.5 18.9 22.1 36.9 36.3 27.2 6.2 7.4 9.2 13.7 13.6 11.0 15.7 11.9 15.9
Multi Modal / CFS
Cont. Corp. 276 61.5 65.6 75.9 26.2 27.8 23.2 14.7 12.5 13.5 17.8 18.3 15.1 11.1 8.4 5.1
AllCargo Logistics 48 56.3 60.9 67.1 19.9 16.2 13.7 13.0 14.5 15.0 10.5 8.7 8.0 9.2 14.4 20.4
Gateway Distriparks
35 11.1 11.4 13.7 18.7 22.8 18.2 21.3 15.1 17.6 11.7 12.6 10.0 10.9 7.7 0.9
Navkar Corp. 28 3.3 3.3 3.8 38.4 33.5 18.6 12.4 10.8 6.1 23.4 21.2 14.0 31.3 29.4 44.3
Source: Company Data, Bloomberg, PL Research
VRL Logistics
December 07, 2015 26
Exhibit 46: VRL have commanded higher one yr fwd multiple in its limited trading history
15x
19x
23x
27x
31x
0
100
200
300
400
500
600
Apr/15 May/15 Jun/15 Jul/15 Aug/15 Sep/15 Oct/15 Nov/15
Source: Company Data, Bloomberg, PL Research
Limited free-float in the sector to command premium
We observe that the promoter ownership in the sector is quite high, barring Gati.
Institutional ownership in most logistics stocks is yet to cross even 20%. We feel VRL
can continue to trade at premium valuations considering its leadership position and
scarcity premium.
Exhibit 47: Institutional ownership less than 20% in most stocks-Scarcity premium remains
SHAREHOLDING PATTERN (%) VRL TCIL Gati Blue Dart
Promoters 69.6 66.5 41.4 75.0
FIIs 10.8 2.9 9.3 7.1
Banks and FIs 8.2 6.5 0.3 5.8
Public 11.5 24.1 49.0 12.1
Source: Company Data, PL Research
VRL Logistics
December 07, 2015 27
Risk and Concerns
Shortage or non-availability of skilled drivers
Shortage of qualified drivers in the transportation industry could force VRL to either
increase driver compensation further or hire third-party owned trucks which may
not be available at commercially viable rates. Thus, VRL needs to attract and retain
sufficient number of skilled drivers. Any inability to do so would force VRL to rely
heavily on hired transportation which can result in idling of owned vehicles and limit
profitable growth.
Inability to pass on increase in operating cost, particularly fuel price hikes
Fuel costs, Toll charges and Rent represent almost 37% of total costs for VRL. Thus,
any rapid increase in diesel prices can adversely affect its profitability since it may
not be able to pass through increased fuel costs to the customers on a real time
basis. However, historically VRL has been able to pass on fuel price hikes and other
operating costs to its customers by way of increase in freight rates or bus ticket
prices with a lag of 4 to 6 weeks.
Outstanding litigations and proceedings against VRL
There are 1171 civil complaints filed against VRL involving a total amount of
Rs1244m most of which pertains to road accidents involving death of a person,
damage of goods in transit, transportation of goods not permitted, goods theft etc.
However, substantial portion of the expected liability/payment arising out of these
cases would devolve on third parties such as insurance companies.
Exhibit 48: Outstanding litigations and proceedings against VRL
Nature of cases Number of cases Amount involved (Rs m)
Criminal 9 0.9
Civil* 1171 1244.1*
Writ 1 NIL
Labour 103 78.4
Consumer Cases 38 9.1
Tax 8 161.3
Source: Company Data, PL Research * As on March 28, 2015
VRL Logistics
December 07, 2015 28
Annexure
Exhibit 49: Company Timeline
1976 Commencement of Goods Transport Service by Mr. Vijay Sankeshwar with single truck
1983 Business being converted into a private limited company by the name of Vijayanand Roadlines Private Limited
1992 Commencement of Courier Service within the State of Karnataka
1994 Vijayanand Roadlines Private Limited becomes Deemed Public Limited Company
1996 Commencement of Passenger Transportation Business
1997 The status of the company changed to Public Limited Company
2003 Vijayanand Printers Limited becomes a wholly owned subsidiary
2003 Entry in to LIMCA BOOK OF RECORDS as the single largest fleet owner of commercial vehicles in the private sector in India
2004 Commercial operation of gigantic infrastructure facility at Varur, Hubballi
2005 ISO 9001:2000 Certification for providing passengers travels service at Hubballi, Bengaluru, Belgaum (presently ISO 9001:2008)
2006 Entire stake in Vijayanand Printers Limited divested to Times Group
2007 Company diversified into power generation and installed 34 Wind Turbine Generators with capacity of 1.25 MW each
2008 Company entered into air charter business and purchased a brand new IA aircraft from Hawker Beechcraft Incorporation
2009 UNFCCC approval for Company’s wind power project – Eligible for carbon credits
2010 Efforts of Company being recognised by way of several awards and recognitions
2011 Foray into New Logistics Verticals – Car Carrying and Liquid Transportation
2012 CER income recognised for the first time in accounts
2012 Private Equity investment by NSR PE Mauritius LLC in the Company
2013 Addition of one more Aircraft to the Air Charter business of the Company
Source: Company Data, PL Research
Road Safety and Transport Bill, 2014
The Government has proposed a new Road Safety and Transport Bill, 2014 to amend
the existing Motor Vehicles Act, 1988 to provide a comprehensive framework for
goods transportation and passenger transportation activities in India.
The Transport Bill proposes unified, transparent and single window driver licensing
system with simplified procedures, relaxed requirements for drivers to obtain driving
licenses, automated driving tests, unified biometric systems and adoption of
technology-based driver testing facilities which are likely to result in increased
availability of qualified drivers through the introduction of simplified licensing
procedures.
The Bill also proposes a unified vehicle registration system and simpler online
transfers of vehicles across various states in India, which will significantly improve
operating efficiencies and reduce operational costs for the passenger transportation
segment. This is expected to make the inter-state passenger transport smoother and
efficient as compared to the current complex and restrictive rules.
Passenger transport to enjoy same
flexibility as goods transport with ease of
movements between states
VRL Logistics
December 07, 2015 29
Income Statement (Rs m)
Y/e March 2015 2016 2017E 2018E
Net Revenue 16,712 18,151 20,417 22,617
Raw Material Expenses 11,794 12,433 14,139 15,719
Gross Profit 4,918 5,718 6,278 6,898
Employee Cost 1,980 2,269 2,552 2,827
Other Expenses 211 236 265 294
EBITDA 2,728 3,213 3,461 3,777
Depr. & Amortization 877 932 1,002 1,072
Net Interest 586 436 303 270
Other Income 114 60 70 120
Profit before Tax 1,379 1,904 2,225 2,555
Total Tax 467 628 712 818
Profit after Tax 912 1,276 1,513 1,738
Ex-Od items / Min. Int. — — — —
Adj. PAT 912 1,276 1,513 1,738
Avg. Shares O/S (m) 85.5 91.2 91.2 91.2
EPS (Rs.) 10.7 14.0 16.6 19.0
Cash Flow Abstract (Rs m)
Y/e March 2015 2016 2017E 2018E
C/F from Operations 2,317 2,438 2,581 2,846
C/F from Investing (491) (750) (850) (850)
C/F from Financing (1,812) (1,605) (1,233) (1,771)
Inc. / Dec. in Cash 15 83 498 225
Opening Cash 125 140 223 721
Closing Cash 140 223 721 946
FCFF 1,827 1,688 1,731 1,996
FCFE 472 (637) 1,161 959
Key Financial Metrics
Y/e March 2015 2016 2017E 2018E
Growth
Revenue (%) 11.9 8.6 12.5 10.8
EBITDA (%) 32.0 17.8 7.7 9.1
PAT (%) 60.0 39.9 18.6 14.8
EPS (%) 60.0 31.1 18.6 14.8
Profitability
EBITDA Margin (%) 16.3 17.7 16.9 16.7
PAT Margin (%) 5.5 7.0 7.4 7.7
RoCE (%) 15.8 19.6 20.4 21.1
RoE (%) 27.5 28.3 25.6 25.3
Balance Sheet
Net Debt : Equity 1.2 0.4 0.3 0.1
Net Wrkng Cap. (days) 20 21 21 24
Valuation
PER (x) 40.3 30.7 25.9 22.5
P / B (x) 10.3 7.2 6.2 5.3
EV / EBITDA (x) 15.0 12.9 11.8 10.6
EV / Sales (x) 2.5 2.3 2.0 1.8
Earnings Quality
Eff. Tax Rate 33.9 33.0 32.0 32.0
Other Inc / PBT 5.7 3.2 3.1 4.7
Eff. Depr. Rate (%) 7.1 7.0 7.0 7.0
FCFE / PAT 51.8 (49.9) 76.7 55.2
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2015 2016 2017E 2018E
Shareholder's Funds 3,563 5,458 6,355 7,375
Total Debt 4,434 2,550 2,500 2,000
Other Liabilities 973 990 1,022 1,055
Total Liabilities 8,969 8,998 9,877 10,430
Net Fixed Assets 7,159 7,080 7,158 7,136
Goodwill — — — —
Investments 846 811 811 811
Net Current Assets 962 1,107 1,909 2,483
Cash & Equivalents 166 249 747 971
Other Current Assets 1,359 1,443 1,607 1,767
Current Liabilities 563 585 445 255
Other Assets — 1 — —
Total Assets 8,968 8,998 9,877 10,430
Quarterly Financials (Rs m)
Y/e March Q3FY15 Q4FY15 Q1FY16 Q2FY16
Net Revenue 4,299 3,974 4,479 4,272
EBITDA 746 590 832 694
% of revenue 17.4 14.8 18.6 16.3
Depr. & Amortization 232 185 223 224
Net Interest 145 136 103 74
Other Income 21 58 19 23
Profit before Tax 390 327 525 420
Total Tax 139 133 172 130
Profit after Tax 251 194 354 290
Adj. PAT 251 194 354 290
Key Operating Metrics (Rs m)
Y/e March 2015 2016 2017E 2018E
Segment Revenues
Goods Transport 12,908 14,132 16,025 18,093
Bus Operations 3,316 3,406 3,759 3,872
EBIT
Goods Transport 1,670 1,908 2,083 2,298
Bus Operations 362 460 470 503
Source: Company Data, PL Research.
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Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
44.7% 42.7%
12.6%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% o
f To
tal C
ove
rage
BUY : Over 15% Outperformance to Sensex over 12-months
Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months
Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month
Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Nishna Biyani (BE, MBA-Finance), Mr. Keyur Pandya (Mcom, MBA-Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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ANALYST CERTIFICATION
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