VRL Logistics Ltd - Karvy Online

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


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


Exhibit 2: Shareholding Pattern (%) FIIs 10.5%


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


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%


2


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


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


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


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


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.


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


Dec-15

1.3% 2012

1.5% 2013

Largest Customers

0.9% 2014

1.1% Dec-15

Top 5 Customers


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, * 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


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


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


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


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.


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 (%)


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 (%)


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


9


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(%)


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


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


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


Exhibit 31: EV/EBITDA 18

15

12

9 Apr-15

May-15 EV / EBITDA

Jun-15 Average

STDEV1

Jul-15 STDEV2

Aug-15 ~-1STDEV


Key Risks yyFluctuation in the crude prices. yyGeneral economic slowdown.

11


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


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


(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 (%)


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)


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%