INSUBCONTINENT EXCLUSIVE:
Kotak Securities has given a buy recommendation on VRL Logistics with a target price of Rs 325.
Shares of VRL Logistics traded at Rs 267
around 10:10 am on 16 July, 2019
The brokerage has set a one-year horizon for the stock to hit the target price
"We estimate strong earnings growth in long term for the company with improvement in Ebidta margins and return ratios
We continue to remain positive on the company and value the company at 24 times FY21 earnings and recommend buy with an unchanged target
price of Rs 325," said the brokerage.
Investment rationale by the brokerage-VRL is GST prepared With the implementation of GST, the
management of the company has mentioned that the manufacturers have started to shift their supply chain logistics to large fleet operators,
who could manage large scale operations for them along with proper paper work for input tax credit
Unorganized players are not able to provide the required logistics network and maintain technology and paper work demanded by the big
Businesses is slowly and gradually getting shifted to organized players like VRL which has already made significant investments in
hub-and-spoke network, owned truck base and created a huge driver base of 7,000 drivers on the pay-rolls of the company.
Improvement in
turnaround time of trucks In our recent interaction, the management indicated that, post removal of inter-state check-post, the company has
experienced improvement in utility of trucks and lower turn-around time of trucks
The management did not quantify the same, but indicated that there is further room for improvement to lower the turnaround time for trucks,
which would aid the margins of the company going forward
Improvement in turn-around time also lowers the capex requirement of the company in the trucking segment with improved utilization of
current fleet.
E- Way bill ensuring GST compliance E-way bill is an electronic way bill for movement of goods which can be generated on the
GST Network (common portal)
Under GST, transporters or supplier generate and carry an electronic waybill or E-Way Bill when moving goods worth Rs 50,000 or more from
This is verified by the receiver of such goods
When an e-way bill is generated a unique e-way bill number (EBN) is allocated and is available to the supplier, recipient, and the
transporter for tax compliance.
Motor vehicle Bill makes headwayThe Motor Vehicles (Amendment) Bill has finally made some headway with the
cabinet approving the bill on 24th June 2019
The brokerage expects the bill to be passed in the Rajya Sabha by the end of the monsoon session after debate
Motor Vehicle Amendment Act proposes a unified vehicle registration system and a simplified system of vehicular and transport permits
This is estimated to significantly improve operating efficiencies and reduce operational costs for the passenger transportation business
(bus segment) of VRL by reducing various operational hurdles relating to inter-State transportation of passengers, and simplifying the
regulatory framework around vehicle permits and driver licenses.
Business remains strong for VRLCurrently VRL has a fleet of nearly 4,400
trucks and 383 luxury buses (all owned) enabling the company to reduce dependence on hired vehicles, retain control of the value chain and
service quality, and establish a reputation for reliable and timely delivery of consignments
The variety of goods transportation vehicles in the fleet also enables the company to serve a diverse mix of consignments
Above all, the company operates its trucks in less than truck load segment (LTL) which is premium and more immune to slowdown in
trade.
Capex to align with GSTManagement of VRL had indicated that the company has most of the infrastructure in place to cater to the
changing requirement of clients in the medium term.
As per the brokerage, the next phase of capex for the company would be now primarily
towards purchase of larger and modern trucks, new Volvo buses and expansion of hubs
The upcoming capex would be in sync with the requirement mandated by GST and adhere to the new Axle Load norms
The brokerage estimates the company to spend a total of Rs 265 crore over the next 2 years as capex.
Improvement in performance going
forward"We estimate that the various legislative changes like GST Act, Motor Vehicle Amendment Act, Scrappage policy and Axle Load norms, to
fully yield benefits for VRL from FY21," said the brokerage
Healthy GDP growth, improvement in trade and various road infra projects of the government would further add to the growth of the company
The brokerage expects improvement in tonnage in the trucking segment with enhanced client base, improvement in occupancy in the bus segment
with improved geographical reach and operating leverage to play-out which would lead to improvement in margins and return ratios
The management has guided for 10 per cent year-on-year (YoY) volume growth per annum over the next 3 years.