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VRL Logistics Limited IPO Views - 16th Dec 2015

Logistics | Published on Apr 11th 2015

IT

VRL Logistics (VRL) is among the leading pan-India passenger and goods transportation companies. It has an established brand name in the transportation industry in India with one of the largest fleet of commercial vehicles in the private sector. Goods transportation is the primary business of the company accounting for 76% of the overall revenues (for 9MFY2015). It also provides luxury bus services across South and West of India. Additionally, it has operations that include courier services, hotel (restaurant) operations, sale of power (Wind Power business) and air chartering services. Main business to benefit from improving macro condition: VRL’s main business, which is goods transportation, has one the largest fleet size that serves a broad range of industries, including the fast moving consumer goods (FMCG) sector as well as other industries including food, textiles, apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal products, wood, glass, automotive parts and machinery. We believe that the policy reforms, lower inflation levels and interest rate cuts will provide boost to commercial activity in the country. On the back of said outcomes, the main business and especially Less than Truck Load business (LTL - which is a high margin business), stands to benefit from improving macro conditions. GST implementation to benefit the logistics sector: At present, the duty and taxation structure is such that the goods are taxed multiple times (while crossing boundaries) as they move across the country. The varying taxation system across 29 states and seven union territories has obstructed the creation of national network. The planned GST is expected to eradicate multiple taxes and tariffs at state level and proposes taxation at the national level. In our view, this will benefit the logistics sector and especially major players like VRL. VRL has a pan India presence with agencies, branches and hubs spread out across the country. Outlook and Valuation: The company’s net sales have grown at a CAGR of 18.9% over FY2011 to 1,494cr in FY2014. The EBITDA margin has been declining (from 18.7% in FY2011 to 13.8% in FY2014) but has recovered well in 9MFY2015 to the level of 17.0%. The net profit has grown at a CAGR of 15.3% over FY2011-FY2014. At the higher end of the price band, the stock is valued at 19.6x its FY2015E annualized earnings which we believe is attractive considering that similar logistic companies like Transport Corp trades at 25.0x its FY2015E earnings. Considering the improving economic outlook, its pan-India presence and resonable valuations, we recommend a Subscribe to the issue at the upper price band.

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