Sep 11, 2015 - Exhibit 12: Revival in the economy to drive freight business .... connecting over 100 destinations in mul
Sep 11, 2015 VRL Logistics Ltd Sep 11, 2015
Industrials - Transportation & Logistics
VRL Logistics Ltd Bloomberg Code: VRLL IN
BUY
India Research - Stock Broking
Robust Road Ahead
Recommendation (Rs.)
Revenue to grow at CAGR of 11%:
Target Price
CMP (as on Sep 10, 2015)
The company’s goods transportation division has strong pan India presence covering 28 states, 4 union territories and more than 662 cities with the help of more than 1000 branches and franchisees; and 48 strategically located transshipment hubs. Going forward, the company is planning to add 300 trucks in this division and is also planning to strengthen its infrastructure in its existing market in the southern and western regions of India; and expand into northern and eastern regions. On this backdrop, we expect the division to report average revenue growth of 14% in the next two years. In the passenger segment, the company is going slow and is consolidating its position; and focusing on premium routes, thus we expect flat 2% average growth in this division.
EBITDA margins to improve to 17.9% in FY16E and further to 18.9% in FY17E: We expect EBITDA margins to improve going forward; and as a result, the absolute EBITDA would grow around 19% in FY16E and FY17E. Improvement in the profit margin is largely due to consolidation in the passenger transportation business and higher contribution from the LTL in the goods transportation business.
RoE (%) and RoCE (%) to be high around 25% and 28% respectively in FY17E: Optimal utilization of assets, improvement in the occupancy level and realization per passenger are expected to drive up the return on investment. Even in the past the company has been reporting robust return on investment.
477
Upside (%)
19
Stock Information Mkt Cap (Rs.mn/US$ mn)
36621/551
3M Avg. daily volume (mn)
0.60
52-wk High/Low (Rs.) Beta (x)
Sensex/Nifty
479/261
0.99
25622/7788
O/S Shares(mn)
91.24
Face Value (Rs.)
10
Shareholding Pattern (%) Promoters
69.6
FIIs
10.5
DIIs
8.8
Others
11.2
Stock Performance (%) Absolute
Relative to Sensex
1M
3M
6M
1.8
38.7
95.8
11.7
45.3
100.9
Source: Bloomberg
Relative Performance*
Valuation and Outlook
240
At the current price of Rs. 401, the stock is trading at a P/Ex of 32.1x and 24.6x on FY16E and FY17E earnings respectively. We are recommending buying the stock with price target of Rs. 477, giving an upside potential of 19%.
160
Key Risks
401
200
120 80 Apr-15 May-15 Jun-15 VRL
yyFluctuation in the crude prices. yyGeneral economic slowdown.
Jul-15 Aug-15 Sensex
Source: Bloomberg; *Index 100
Exhibit 1: Valuation Summary (Rs. Mn) YE Mar (Rs. Mn) Net Sales EBITDA
EBITDA Margin (%) Adj. Net Profit
FY13
FY14
FY15
FY16E
FY17E
13255
14938
16712
18201
20495
14.7
13.8
16.3
17.9
18.9
1952
803
EPS (Rs.)
11.4
PE (x)
35.3
RoE (%)
36.3
2066
570
2728
3865
912
1140
1489
27.5
25.5
25.1
6.7
10.7
60.2
37.6
19.1
3257
12.5 32.1
16.3 24.6
Source: Company, Karvy Research
For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters
Analyst Contact Ajay Lakra
040 – 3321 6271
[email protected]
1
Sep 11, 2015 VRL Logistics Ltd
Company Background
Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15
FY16E
FY17E
Net sales
16712
18201
20495
EBITDA
2728
3257
3865
Optg. Exp (Adj for OI) Depreciation
13984
14945
877
Interest
1231
586
Other Income
465
77
PBT
68
16630
1467
344
73
1379
1628
2127
912
1140
1489
EBITDA margin (%)
16.3
17.9
18.9
P/E (x)
37.6
32.1
24.6
1.0
1.0
1.0
Tax
467
Adj. PAT
488
638
Profit & Loss Ratios Net Profit margin (%) EV/EBITDA (x)
5.5
6.3
14.1
Dividend yield (%)
12.0
7.3 9.7
Source: Company, Karvy Research
Cash Flow (Rs. Mn)
Balance sheet (Rs. Mn) FY15
FY16E
FY17E
Total Assets
9,531
10,293
10,542
Current assets
1,526
2,408
3,063
Net Fixed assets
7,051
Other assets
6,874
954
1,011
6,411 1,068
Total Liabilities
9,531
10,293
10,542
Debt
4,434
3,323
2,411
Networth
3,562
Current Liabilities
Other Liabilities & prov.
5,390
504
528
1,032
1,051
6,485 574
1,072
Balance Sheet Ratios RoE (%)
27.5
RoCE (%)
25.5
23.9
Net Debt/Equity
25.1
1.4
Equity/Total Assets
0.7
9.4
P/BV (x)
11.5
9.6
6.8
Source: Company, Karvy Research
Exhibit 2: Shareholding Pattern (%) FIIs 10.5%
Source: Company, Karvy Research
25.1 28.1
0.3
14.3
5.6
PBT
Depreciation
FY15
FY16E
FY17E
1,379
1,628
2,127
586
465
344
877
Interest Tax
Changes in WC CF from Operations Capex
1,467
(287)
(488)
(638)
(22)
(78)
(84)
(216)
Others
1,231
2,317
(110)
(168)
2,649
3,047
(859)
(1,050)
(1,000)
CF from Investing
(491)
(982)
(927)
Change in Debt
(621)
(1,110)
(912)
Interest
(587)
(465)
(344)
Others
Change in Equity Dividends
368
0
(604)
CF from Financing Change in Cash
(1,812)
15
68
73
1,083
0
(394)
(394)
(887)
(1,651)
779
470
Source: Company, Karvy Research
Exhibit 3: Revenue Segmentation (%)
DIIs 8.8% Others 11.2%
Promoters 69.6%
VRL logistics started its journey way back in 1976, by commencing transport services with one truck, and in 1996, the company entered into passenger transportation business. Today, the company has grown big enough to provide logistics service on a pan India basis. The network of the company covers 28 states, 4 union territories and lately, it has also opened its branch network in Kathmandu in Nepal. In order to provide quality & reliable service for on-time delivery, the company owns 3701 trucks for its goods transport division. It has over 1000 branches/franchisees and 48 hubs which support the goods transportation business. The logistics services of the company span across diverse industry and customers with a core interest in Less Than Truck Load (LTL). In the passenger transportation, the company has largest market share in Karnataka. The division has significant concentration in the southern and western regions with 375 buses and over 1000 branches/franchisees/prepaid agents. In April 2015, the company has made its debut in the stock market. The IPO was a blockbuster with subscription in access of 75 times.
Goods transport 77.9%
Bus operations 20.0%
Air chartering service 0.7% Sale of power 1.3%
Source: Company, Karvy Research
2
Sep 11, 2015 VRL Logistics Ltd
Strong network and wide variety of own vehicles with a carrying capacity of 1 to 32 tonnes show revenue growth visibility Wide Geographical Coverage: Exhibit 4: Robust Network in Major states Branches
Franchisees
Hubs
153
77
10
76
50
8
Karnataka
Tamil Nadu
102
Andhra Pradesh Telangana
34
26
Maharashtra
23
68
Gujarat
16
Delhi
18
12
Punjab
13
6
6
Haryana
3
0
17
West Bengal
6
19
23
Uttar Pradesh
6
62
28
Madhya Pradesh
6
1 2
7
7
1 0
7
3 1
Source: Company, Karvy Research
The goods transportation division of the company is fast growing and covering new geographies within the country. The division operates on a pan India basis and going by the number of branches, hubs and franchisees, the company has significant coverage in the key markets of southern and western regions; and some parts of north and east. The company is currently covering 28 states, 4 union territories and more than 662 cities with the help of more than 1000 branches and franchisees; and 48 strategically located transshipment hubs. The company is focusing on expanding its business reach in the northern and eastern regions; and is also planning to service the northeast region where the company is having only one branch in Assam. In this direction, the company has already added 69 branches and 12 agencies to its network in FY14. Again during Q1FY16, the company has added 21 locations to its existing network. Recently, the company has also opened branch in Kathmandu, Nepal. The company hubs are strategically located at key cities across India covering places like Mumbai, Pune, Bengaluru and Delhi. The company is in a lookout for more locations to setup hubs and strengthen its network.
Large scale of owned fleet would continue to give operational efficiency Since inception, the company has been very aggressive on owning its own fleet. In the last couple of years, the company has added huge number of trucks to its fleet portfolio in various categories in terms of carrying capacity and usages. As on June 2015, the goods transportation division of the company is serviced by 3701 owned trucks and this is also complemented by third party trucks. These trucks have wide range of carrying capacity from 1 tonne to 32 tonnes. Almost 35% of the fleet are less than three years old and the average age of goods fleet is 8.3 years. It is to be noted that maximum life for the truck is not applicable in India as it is in the case of buses, except for Delhi and Mumbai where the trucks with more than 10 years old would not be allowed to operate. Going forward, the company is
Exhibit 5: Market share of fleet operators 100%
2%
2%
6%
11%
17%
15%
77%
74%
65%
FY03
FY09
FY15E
13%
75% 50%
98%
85%
25%
20% 15%
0% FY79
FY94
SFOs
MFOs
LFOs
Source: Company, Karvy Research
planning to add 300 goods transportation vehicles between July 2015 to July 2016. The funding would be through IPO proceeds and internal accruals. Post expansion, the dependency on third party trucks will reduce significantly, and would bring both cost and operational efficiency. Exhibit 6: Wide range of trucks to serve diverse customer requirements Small Vehicles
Light Commercial
Heavy Commercial
Car Carriers
Tankers
Cranes
Total Vehicles
(1)
Vehicles (2)
Vehicles (3)
(4)
(5)
(6)
Owned
Mar-11
171
892
1575
0
7
10
2655
Mar-13
122
883
1941
27
13
3088
Year
Mar-12 Mar-14 Mar-15 Jun-15
139 122 120 120
883 882 975 988
1916
102
27
2210
102
23
2423 2461
102 102 102
16 17
12 13 13 13
3079 3352 3649 3701
Source: Company, Karvy Research
1. Small vehicles are defined as vehicles with carrying capacity up to 2500 kilograms.
2. Light commercial vehicles are defined as vehicles with carrying capacity between 2500 kilograms and 7500 kilograms. 3. Heavy commercial vehicles are defined as vehicles with carrying capacity of more than 7500 kilograms. 4. Used for transportation of automobiles. 5. Used for transportation of liquid.
6. Cranes are predominantly used for internal operations.
3
Sep 11, 2015 VRL Logistics Ltd
IPO update: Exhibit 7: Revenue Contribution (%) from LTL is high Courier Services Business 0.4%
FTL 8.9%
Car Carrier 2.3%
LTL 88.2%
Liquid Transportation 0.2%
In April 2015, the company has come out with an IPO and raised Rs. 4679 Mn. Out of the total proceeds, the company has received Rs. 1170 Mn and remaining was on Offer for Sale (OFS) by NSR-PE Mauritius LLC. As per the objectives of the issue, during Q1FY16, the company has repaid Rs. 280 Mn towards high interest bearing debt. Out of the Rs. 674.2 Mn allocated for the purchase of goods transportation vehicles, the company has already utilized Rs. 48.6 Mn and has purchased 56 goods transportation vehicles.
Source: Company, Karvy Research
Exhibit 8: Company Maintained Steadly High Contribution from LTL (%) 100 80
Exhibit 9: Revenue Contribution from the Largest and Top Five Customers 6.6%
91.8
89.2
88.5
86.4
60
6.1%
5.4%
5.3%
5.1% 3.3%
40 20 0.0%
0 2012
2013
2014
Source: Company, Karvy Research
Dec-15
1.3% 2012
1.5% 2013
Largest Customers
0.9% 2014
1.1% Dec-15
Top 5 Customers
Source: Company, Karvy Research
Hub-and-Spoke Operating Model: Currently, the company operates with 48 hubs in key locations across India and it is planning to add more hubs. This kind of business model enables to transport parcels of varied size; and provide customers facility wherein they can book and deliver the goods to multiple destination points. In this model, the company consolidates goods from multiple locations to its transshipment hubs and from there the goods are re-distributed to its respective destinations.
Government initiatives and revival in the economy to drive growth of road freight by 15% CAGR Exhibit 10: Freight transportation market share (%) Rail Freight 27.0% Others 10.0%
Road Freight 63.0% Source: Company, Novonous, Karvy Research
India’s freight transportation industry is highly dominated by road transport, carrying 63% of the total industry size. As per the market research company NOVONOUS estimates, India’s freight industry is expected to grow at CAGR of 13.35% by 2020 to $ 307.7 Bn; and during the same period, the road freight is expected to grow at CAGR of 15%. Within the road freight sector, robust growth of the non-bulk freight to drive the company’s goods transportation business. The contribution of the non-bulk freight is fast growing and is expected to grow at a CAGR of 10% by 2019, higher than the bulk cargo which is expected to grow at a CAGR of 7% during the same period. Currently, the road freight constitutes of 2.2 Mn of heavy duty trucks and 0.6 Mn light duty trucks covering 1800000 Km of road length
and carrying ~3000 Mn tonnes of load every year. Going forward, the key driving factor of the road freight would be overall revival in the economy, which grew ~7.5% in FY15 and as per the World Bank estimates, the GDP is expected to grow around 8% in FY16E and FY17E. The key industries which would drive the future growth are the manufacturing, retail, FMCG and e-commerce sectors.
4
Sep 11, 2015 VRL Logistics Ltd Exhibit 12: Revival in the economy to drive freight business
Exhibit 11: Driving factors for the India’s freight business FY14
FY15
FY16
8 6.9
Industrial GDP
4.5
5.9
6.2
6
Construction
5.8
5.4
8.7
4
Cement
2.7
5.2
6.3
2
Coal Mining
1.8
4.4
5.4
0
Iron mining
6.6
5.5
23.4
Steel products
2.5
2.5
5.5
Two Wheelers
7.3
9-11
12-14
(6.0)
4-6
9-11
100%
0.3
3.3
10.0
80%
17.0
10.5
12.5
60%
Fertilizers
2.6
(0.6)
2.1
40%
Textiles (RMG*)
5.5
5.9
6.7
20%
Agri GDP
3.7
1.1
3.0
0%
Port Traffic
2.0
5.0
7.0
Cars and Utility Vehicles Consumer Durables Pharmaceuticals
7.3
7.5
2014
2015
7.9
8.0
2016E
2017E
5.1
2012
2013
Real GDP Growth Rate (%) Source: World Bank, Karvy Research
Exhibit 13: Contribution of Non-Bulk Freight is growing fast (%) 21.7%
21.3%
19.4%
72.5%
78.3%
78.7%
80.6%
FY09E
FY14E
FY15E
FY19P
17.5%
Non Bulk
Bulk
Source: Company, Karvy Research
Source: Company, Karvy Research, * RMG: Readymade Garments
Government Initiatives: Implementation of GST would lead to rationalization of tax: This would result into smooth movement of goods between the states. Furthermore, the implementation of uniform billing system and advance infrastructure is expected to result into better implementation of the benefit of tax credit and bring in supply chain efficiency. Focus on building robust infrastructure: Dedicated Freight Corridor (DCF)/ Diamond Quadrilateral would create additional capacity thereby reducing unit cost of transportation and increasing multi-modal transportation of bulk cargo. Make-in-India Initiatives: Improve disposable income and increase consumption expenditure.
Consolidation in passenger transportation division and concentration on premium routes to drive profit margin Exhibit 14: Passenger Vehicles 500 400
423
460
477 375
300 296
200 100
373
196
0 FY10
FY11
FY12
FY13
FY14
No. of passenger Vehicles Source: Company, Karvy Research
FY15 Jun-15
As on June 2015, the company operates with 373 own buses as against 477 buses at the end of March 2014. Fall in the number of buses is due to the expiry of bus permits and the company made no additional capital expenditure for replacing them. The company is concentrating on the more premium routes having high occupancy level. This would help in the optimal utilization of passenger vehicles improved passenger realization and occupancy level. Going forward, the passenger segment is expected to revive further with the stabilization of Telangana issue. We expect the company would continue to enjoy higher margin in the near term as the company has no immediate plans of increasing the number of buses. Moreover, almost 90% of the companies owned buses are less than 5 years old and the average age of the company buses are 4.2 years.
5
Sep 11, 2015 VRL Logistics Ltd Exhibit 15: Owns wide range of buses to service passengers with different pocket sizes Air-Conditioned Seater Volvo Multi-Axle Buses Air-Conditioned Seater Volvo Buses
FY10
FY11
FY12
FY13
FY14
Dec-14
8
36
96
112
112
112
0
20
20
20
20
17
20
Air-Conditioned Seater Isuzu Buses Air-Conditioned Sleeper Buses
20
7
15
20
19
19
28
17
0
48
48
Non- Airconditioned Sleeper and Seater Buses
91
139
190
212
206
151
Non-Airconditioned Seater Buses
64
60
72
69
74
74
211
323
449
502
522
455
Non-Airconditioned Semi-sleeper Buses
6
Staff Buses
6
15
Total
27
6
0
26
42
0
0
45
53
Source: Company, Karvy Research
Exhibit 16: The main routes in which the company operates its passenger buses are KMs
No. of Services
VRL Avg. Fare (Rs.)
Peer Avg. Fare (Rs.)
Ahmedabad
1491
5
2400
2328
Mangalore
351
5
870
672
Bengaluru to Jodhpur Goa
1944 560
1305
980
13
1769
1293
410
26
Pune
837
Hubballi to
2
15
Bengaluru
410
11
Pune
148
11
Mumbai
Jodhpur Shirdi
Mumbai to
2610
1150
1006
Hubballi
2500
2
Shirdi
Mumbai
1
579 982 243
1650 1606 1484
555
1500 1451 1204
613
16
1275
1126
1
2200
2305
2
1341 1550
1152 1500
Bengaluru
984
10
1830
1333
Goa
608
1
1200
1003
Mangalore Hyderabad Hyderabad to
935 706
2 1
1800 1500
1175 1319
Goa
666
1
1900
1456
Mumbai
706
1
1000
1118
Bangalore Shirdi
567 593
2 3
1350 1333
1323 1151
Source: Company, Redbus, Karvy Research
6
Sep 11, 2015 VRL Logistics Ltd New Transportation Bill: The government is proposing new transportation bill, which is expected to bring in operational efficiency and cost reduction by reducing the various hurdles while moving the passengers from one state to another. Among many other reforms, the bill also includes national permit for passenger vehicles as it is in the case of goods transportation vehicles. The implementation of the new transportation bill would bring in huge benefits to the company as it operates in more than 350 routes connecting over 100 destinations in multiple state like Karnataka, Maharashtra, Andhra Pradesh, Tamil Nadu, Gujarat, Rajasthan and Goa. Within these states, the company is focusing on high density cities such as Bengaluru, Mumbai, Pune, Hyderabad and Panjim, and also connect tier-2 and tier-3 cities. The company runs one of the longest routes in India connecting Bengaluru and Jodhpur. In this route, the bus has to pass through multiple states and has to face different regulations of each state under the existing circumstances.
Use of bio-diesel and falling crude oil prices coupled with economies of scale would lead to margin accretion During Q1FY16, the company has started using bio-diesel for both passenger vehicles and goods transportation vehicles. During the period, the company used 12.5% of the total fuel consumption and as per the management, it is saving ~Rs. 6 per liter. Going forward, the company is planning to scale it up to 15%, this would directly benefit the company in terms of higher EBITDA margin. Since the company has large fleet (all vehicles and buses put together) size of over 4000, the company also enjoys economies of scale while procuring diesel in bulk. Recent turmoil in the global crude oil prices and deregulation of the diesel prices by the Indian government is expected to have direct benefit to the company. On the back of falling crude oil prices, Indian Oil Marketing Companies (OMCs) have also slashed the diesel prices. In the month of August 2015 alone, the OMCs have announced cut in the diesel prices thrice, and as on Aug 31, 2015, the retail price of diesel in Delhi was at Rs. 44.45/liter. Since the announcement of deregulation of the diesel prices in October 2014, the domestic diesel prices have fallen by almost 25% from the high of Rs.58.4 in August 2014 to Rs. 44.45 as on Aug 31, 2015. Exhibit 17: Diesel Price falling
Exhibit 18: Crude oil price
70
8000 6000
50
4000 30
2000
Source: IOCL, Karvy Research
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jun-14
Kolkata Chennai
Jan-06
Jun-12
Jan-05
Jun-10
Jan-04
Jun-08
Jan-03
Jun-06
Delhi Mumbai
Jan-02
Jun-04
Jan-01
Jun-02
Jan-00
0
10
Price Source: Indexmundi, Karvy Research
7
Sep 11, 2015 VRL Logistics Ltd
Exhibit 19: Business Assumptions Y/E Mar (Rs. Mn)
FY14
FY15
FY16E
FY17E Comments
Consolidated Revenue
14938
16712
18201
Revenue Growth (%)
12.7
11.9
8.9
EBITDA
2066
2728
3257
EBITDA Margins (%)
13.8
16.3
17.9
PAT
570
912
1140
PAT Growth (%)
(29.0)
60.0
24.9
EPS Growth (%)
(41.3)
60.0
17.1
EPS
Capex (ex. Acquisition) - cash capex
Net CFO
Net Debt
6.7
10.7
(859)
(1,050)
2,033
2,317
2,649
4,904
4,268
2,378
939
1,459
1,599
Source: Company, Karvy Research
12.6
Consolidation in the passenger segment, higher 3865 revenue from LTL and usage of bio-diesel would help in obtaining higher margin. 18.9
Lower interest cost to offset higher depreciation 1489 charges and thus net growth is expected to remain strong on the back of higher operating margin. 30.6
12.5
(1,094)
Free Cash Flow
The consolidated revenue of the company is expected to grow at an average rate of 11% on the 20495 back of 14% growth in goods transport business and 2% growth in the bus operation business.
16.3 30.6
The company is investing on strengthening its infrastructure in northen, eastern and central (1,000) regions. It is also planning to add more fleet in its goods transportation segment. 3,047
Higher operating profit margin is supporting cash flow from operating activities.
Recently, the company has rasied Rs. 1170 Mn from IPO and has repaid debt to the tune of Rs. 280 Mn. In the near term, we are not expecting the 996 company to raise any long term loans for its capex. The company has allocated Rs. 674 Mn for buying trucks and would utilize cash from operation to meet its expansion plans.
2,047
Exhibit 20: Karvy vs Consensus Karvy
Consensus
Divergence (%)
FY16E
18201
18277
(0.4%)
FY17E
20495
21018
(2.5%)
FY16E
3257
3054
6.6%
FY17E
3865
3589
7.7%
FY16E
12.5
13.2
(5.2%)
FY17E
16.3
17.5
(6.8%)
Comments
Revenues (Rs. Mn) We expect no immediate addition of buses in the passenger segment.
EBITDA (Rs. Mn) We are not expecting significant fall in the fuel and hire charges for the company. In the longer term, the hire charges may come down.
EPS (Rs.) With the addition of assets, the depreciaition charges are expected to increase.
Source: Bloomberg, Karvy Research
8
Sep 11, 2015 VRL Logistics Ltd
Exhibit 21: Revenue Growth (%) 17.3% 12.7%
5000
16712
14938
13255
15000 10000
8.9%
11.9%
20495
20000
12.6%
18201
25000
20.0% 15.0% 10.0% 5.0%
0
0.0% FY13 FY14 FY15 Revenue (Rs. Mn)
FY16E FY17E Growth (%)
The consolidated revenue of the company is expected to grow at an average rate of 11% on the back of 14% growth in goods transport business and 2% growth in the bus operation dusiness. Revenue growth in the goods transportation would be driven by the robust infrastructure and huge fleet addition in the segment. Flat growth in the passenger segment is largely due to consolidation in the business and the company’s focus towards more premium routes. In FY15, premits of over 90 buses of the company got expired and no capital expenditure was made for there replacement.
Source: Company, Karvy Research
Exhibit 22: EBITDA Margin (%) 5000 17.9
4000
3865
3257
13.8 2728
1000
14.7
2066
2000
16.3
1952
3000
20.0
18.9
0
15.0
10.0 FY13 FY14 FY15 EBITDA (Rs. Mn)
FY16E FY17E EBITDA Margin (%)
Source: Company, Karvy Research
The EBITDA margin of the company is expected to improve further in FY16E and FY17E, on the back of consolidation in the passenger segment and higher concentration of the company on premium routes with high density. With this, we expect the occupancy level and average realization per passenger to improve. In the goods transportation segment, the company is focusing more on LTL business, which not only operates with high margin but it also results into optimal utilization of the company’s infrastructure and fleet. Usage of bio-diesel and fall in the crude oil prices are also expected to have positive impact on the EBITDA margin of the company. Thus we expect EBITDA margin in the range of 18-19% during FY16E and FY17E.
Exhibit 23: PAT Margin (%)
803
500
6.3%
8.0% 6.0%
1140
3.8%
1000
5.5%
912
6.1%
570
1500
7.3% 1489
2000
4.0% 2.0%
0
0.0% FY13 FY14 FY15 PAT (Rs. Mn)
The company operates with high asset base by owning most of the fleet it is operating, thus the depreciation charges are high. With the recent IPO and better cash flow from operation, we are expecting that the company would not raise any long term loan in the near term, thus the interest charges are low. This is off-setting the impact of high depreciation. Thus, the net profit is expected to grow at 25% in FY16E and further by 30% in FY17E.
FY16E FY17E PAT Margin (%)
Source: Company, Karvy Research
Exhibit 24: Higher Asset Turnover Ratio 8000
2.6 2.3
2000 0
6411
4000
6874
7051
7394
7101
6000
3.1
1.9 FY13
3.2 2.8 2.4 2.0
2.1
The company has been reporting healthy asset-turnover ratio of over 2x, going forward the company is expected to continue the same momentum on the back of strong business model and revival in the economic scenario.
1.6 FY14
FY15
Fixed Assets (Rs. Mn)
FY16E FY17E FA Turnover ratio
Source: Company, Karvy Research
9
Sep 11, 2015 VRL Logistics Ltd
Exhibit 25: Return Ratio (%) 40.0 30.0 20.0 10.0 0.0 FY13
FY14
RoA(%)
FY15
FY16E
FY17E
RoE(%)
Over the years, the company has been generating healthy return on investment. Going forward, we expect same momentum on the back of optimal utilization of the robust infrastructure. The company’s focus on the LTL business in its goods transport division and higher concentration in the premium routes would help the company to report healthy return on investment.
RoCE(%)
Source: Company, Karvy Research
Exhibit 26: Debt-Equity Ratio 6000
3.0
2.5
1000
1.4
0.9
0 FY13
FY14
FY15
Debt
1.5 1.0
2411
1.7
2000
2.0 3323
3000
4434
5007
4000
2.5 5055
5000
0.5
0.5
0.0
In April 2015, the company has come out with IPO and has raised Rs. 1170 Mn. As per the objects of the issue, the company has repaid loan of Rs. 280 Mn. In the near term, the company proposes to add 300 fleet for its goods transportation division and set-up hubs in key locations, which would be funded from the IPO proceeds and internal cash generation.
FY16E FY17E Debt to Equity Ratio
Source: Company, Karvy Research
Exhibit 27: Robust CFO 24%
2,000 1,000
2,033
1,641
-1%
2,317
14%
14% 2,649
3,000
15% 3,047
4,000
0 FY13
FY14
FY15
30% 25% 20% 15% 10% 5% 0% -5%
The company has the track record of generating healthy cash from its operating activities and we expect the cash from operations to improve further going forward on the back of improvement in the EBITDA margin and revenue growth.
FY16E FY17E
Cash from operation (Rs. Mn) Source: Company, Karvy Research
Exhibit 28: Company Snapshot (Ratings) Low 1
High 2
3
33
Quality of Earnings Domestic Sales Exports
Net Debt/Equity
Working Capital Requirement Quality of Management Depth of Management Promoter
Corporate Governance Source: Company, Karvy Research
4
33
33 33
5
33
33 33 33 33 10
Sep 11, 2015 VRL Logistics Ltd
Valuation & Outlook Robust infrastructure and large fleet size of varied capacities are the real strength of the company. Its pan India presence in the goods transportation division perfectly positions the company to take advantage of the revival in the economy and the government initiatives. The passenger transportation business of the company enjoys leadership position in Karnataka and is operating in high density cities in the southern and western parts of the country. We thus recommend buying the stock with a price target of Rs. 477, giving an upside potential of 19%. At the current price of Rs. 401, the stock is trading at a P/Ex of 32.1x and 24.6x on FY16E and FY17E earnings respectively.
Exhibit 29: PE Band
Exhibit 30: PB Band
45.0
6 5.5
40.0
5
35.0
4.5 4
30.0
3.5 3
25.0 Apr-15 May-15 P/E STDEV2
Jun-15 Average ~-1STDEV
Jul-15
Apr-15 May-15 P/B STDEV2
Aug-15 STDEV1
Source: Prowess, Karvy Research
Jun-15 Jul-15 Average ~-1STDEV
Aug-15 STDEV1
Source: Prowess, Karvy Research
Exhibit 31: EV/EBITDA 18
15
12
9 Apr-15
May-15 EV / EBITDA
Jun-15 Average
STDEV1
Jul-15 STDEV2
Aug-15 ~-1STDEV
Source: Prowess, Karvy Research
Key Risks yyFluctuation in the crude prices. yyGeneral economic slowdown.
11
Sep 11, 2015 VRL Logistics Ltd
Financials Exhibit 32: Income Statement YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
Revenues
13255
14938
16712
18201
20495
Operating Expenses
11303
12872
13984
14945
16630
1.7
5.8
32.0
19.4
18.7
Growth (%) EBITDA
Growth (%)
Depreciation & Amortization
17.3
1952
12.7
2066
823
866
EBIT
1227
PBT
636
Other Income
Interest Expenses Tax
Adjusted PAT
98
591
(167)
2728
8.9
3257
12.6
3865
877
1231
1467
1300
1928
2094
2471
768
1379
1628
2127
100 598 198
586 467
68
465 488
73
344 638
(29.0)
60.0
912
1140
1489
YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
Cash & Equivalents
154
151
166
945
1415
97
135
150
175
200
Source: Company, Karvy Research
570
77
95.6
Growth (%)
803
11.9
24.9
30.6
Exhibit 33: Balance Sheet
Sundry Debtors Inventory
Loans & Advances Gross Block Net Block
Miscellaneous
844 1161
800 1106
902 1079
999 1140
1117 1230
11001
12102
12414
13464
14464
294
192
183
159
169
7101
7394
7051
6874
6411
Total Assets
9651
9777
9531
10293
10542
Debt
5007
5055
4434
3323
2411
Total Liabilities
6757
6713
5969
4902
4057
Reserves & Surplus
1082
2209
2707
4478
5573
Current Liabilities & Provisions Other Liabilities
Shareholders Equity Total Networth
Total Networth & Liabilities Source: Company, Karvy Research
858 892
1812
2894 9651
710 949 855
3064 9777
504
1032 855
3562 9531
528
1051 912
5390
10293
574
1072 912
6485
10542
12
Sep 11, 2015 VRL Logistics Ltd Exhibit 34: Cash Flow Statement YE Mar (Rs. Mn)
FY13
FY14
FY15
FY16E
FY17E
PBT
636
768
1379
1628
2127
Depreciation Interest
Tax Paid
Inc/dec in Net WC Others
Cash flow from operating activities
823 591
(131) (276)
(2)
1641
866 598
(149)
4
(55)
2033
877 586
(287) (216)
(22)
2317
1231
465
(488) (110)
(78)
2649
1467
344
(638) (168)
(84)
3047
Inc/dec in capital expenditure
(907)
(903)
(491)
(1050)
(1000)
Cash flow from investing activities
(898)
(911)
(491)
(982)
(927)
Others
Inc/dec in borrowings Issuance of equity
8
(1028)
1240
(8) 47
0
0
68
(621)
(1110)
0
1083
73
(912)
0
Dividend paid
(304)
(564)
(604)
(394)
(394)
Cash flow from financing activities
(724)
(1118)
(1812)
(887)
(1651)
Interest paid
Net change in cash
Source: Company, Karvy Research
(632)
19
(601) 4
(587) 15
(465)
779
(344) 470
Exhibit 35: Key Ratios YE Mar
FY13
FY14
FY15
FY16E
FY17E
EBITDA Margin (%)
14.7
13.8
16.3
17.9
18.9
Net Profit Margin (%)
6.1
3.8
5.5
6.3
7.3
EBIT Margin (%)
9.3
8.7
11.5
11.5
12.1
Dividend Payout ratio
22.9
30.0
37.5
32.0
24.5
RoE (%)
36.3
19.1
27.5
25.5
25.1
YE Mar
FY13
FY14
FY15
FY16E
FY17E
EPS (Rs.)
11.4
6.7
10.7
12.5
16.3
BV (Rs.)
40.9
35.8
41.6
59.1
71.1
9.8
11.2
6.8
5.6
Net Debt/Equity RoCE (%)
Source: Company, Karvy Research
2.4
15.9
1.6
16.2
1.4
23.9
0.7
25.1
0.3
28.1
Exhibit 36: Valuation Parameters
DPS (Rs.) PE (x)
P/BV (x)
EV/EBITDA (x) EV/Sales (x)
Source: Company, Karvy Research
2.6
35.3 17.0
2.5
2.0
60.2 19.0
2.6
4.0
37.6
9.6
14.1
2.3
4.0
32.1 12.0
2.1
4.0
24.6
9.7 1.8
13
Sep 11, 2015 VRL Logistics Ltd Stock Ratings Buy
:
Sell
:
Hold
:
Absolute Returns > 15%
5-15%