Please refer to important disclosures at the end of this report
1
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.
Key Financials
Y/E March (` cr) FY2012
FY2013
FY2014
Net Sales 1,130 1,325 1,494
% chg 27.2 17.3 12.7
Adj. Net Profit 77 46 52
% chg 125.7 (40.4) 14.0
OPM (%) 17.0 14.7 13.8
EPS (`) 10.9 6.5 6.1
P/E (x)* 24.4 40.9 35.9
P/BV (x)* 10.0 6.5 6.1
RoE (%) 47.8 19.2 17.5
RoCE (%) 15.8 12.9 13.4
EV/Sales (x)* 2.2 1.9 1.6
EV/EBITDA (x)* 12.8 12.6 11.4
Source: Company, Angel Research; Note: *The above numbers are considering subscription at the
upper end of the price band
SUBSCRIBE
Issue Open: April 15, 2015
Issue Close: April 17, 2015
Post-issue implied mcap**:
`
1,779cr-1,870cr
Note:**at Lower and Upper price band respectively
QIBs At least 50%
Non-Institutional At least 15%
Retail At least 35%
Post Issue Shareholding Pattern
Promoters Group 69.6
MF/Banks/Indian
FIs/FIIs/Public & Others
30.4
Promoters holding Pre-Issue: 77.2%
Promoters holding Post-Issue: 69.6%
Issue Details
Book Building
Face Value:
`
10
Present Eq. Paid up Capital:
`
85.5cr
Offer Size: 2.3cr Shares
Post Eq. Paid up Capital:
`
9.1cr
Issue size (amount)**:
`
451cr -
`
468cr
Price Band**: `
195-205
Milan Desai
+91 22 4000 3600 Ext: 6846
V
RL Logistics
IPO Note
IPO Note
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Logistics
April 11, 2015
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RL Logistics
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2
Company Background
VRL is one of the leading pan-India surface logistics and parcel delivery service
providers. It has the largest fleet of commercial vehicles in the private sector in
India. It provides general parcel and priority parcel delivery (less than truckload
[LTL] services), courier and full-truckload (“FTL”) services through its widespread
transportation network in 28 States and four Union Territories across India. As of
September 30, 2014, the company had 603 branches (583 leased branches and
20 owned branches) and 346 agencies across India, and of 603 branches, 48 (41
leased branches and seven owned branches) served as strategic transhipment
hubs for operations.
Goods transportation is the primary business of the company accounting for ~76%
of its overall revenues (for 9MFY2015). As of December 31, 2014, the goods
transportation fleet included 3,546 owned vehicles. A large fleet, mostly owned by
the company, enables it to reduce dependence on hired vehicles. The company
also provides luxury bus services (focused on high density urban commuter cities)
across the States of Karnataka, Maharashtra, Goa, Andhra Pradesh, Telengana,
Tamil Nadu, Gujarat and Rajasthan. As of December 31, 2014, it owns and
operates 455 buses. Bus operations accounted for ~20% of the overall revenues
for 9MFY2015. The revenue from other operations includes courier services, hotel
(restaurant) operations, sale of power (Wind Power business) and air chartering
services.
Exhibit 1: Structure
Source: Company, Angel Research
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Issue Details
The issue comprises of Fresh Issue of equity shares of `10 each in the price band
of `195-`205 aggregating up to `117cr; and offer for sale by private equity firm
NSR PE Mauritius LLC and Promoter Group of 1.71cr shares. The issue constitutes
25% of the post issue paid-up equity share capital of the company.
Exhibit 2: Share Holding pattern
Particulars Pre-Issue Post-Issue
No. of shares
(%) No. of shares (%)
Promoter and Promoter Group 6,60,46,000
77.2% 6,34,80,000 69.6%
NSR 1,92,54,912
22.5% 47,04,912 5.2%
Others 2,35,250
0.3% 2,30,58,567 25.3%
Total 8,55,36,162
100% 9,12,43,479 100%
Source: Company, Angel Research
Objects of the Fresh Issue
Purchase of goods transportation vehicles amounting to `67cr.
Repayment/pre-payment, in full or part, of certain borrowings availed by the
company amounting to `28cr.
The balance, which is contingent upon the issue price will be utilised for
general corporate purpose.
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RL Logistics
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Investment Arguments
Economic revival augers well for Goods Transportation Business
VRL derives majority of its revenue from the goods transportation business
(~76% of total). It has the distinction of owing one of the largest fleets in the
private sector, if not the largest. As of 31
st
December, 2014, the company’s fleet
strength stood at 3,546 vehicles serving 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 resultant rate cuts will
provide boost to commercial activity in India. On the back of said outcomes, the
main business of the company should perform well with improving macro
condition.
Exhibit 3: Expected Growth in GDP
7.3
7.6
8.1
8.2
7.6
8.0
8.8
9.0
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
(%)
Source: Company, Angel Research
Exhibit 4: Goods Transportation Business Trend
711
889
1,130
1,325
1,494
1,698
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E*
(`)
Goods Transport Business Revenue
Source: Company, Angel Research; *Note- FY2015E represents annualized
numbers
Lower Oil prices, a near-term boon
Diesel is a major component of company’s operating expenses and all of its
vehicles run on diesel. As a percentage of net sales, diesel expense for 9MFY2015
stood at 27.3%. The company has adjusted freight rates periodically in the past
when the diesel prices have been on the rise. However, during the IPO meet, the
Management stated that the company has not reduced the freight rates during the
recent decline in fuel prices. Diesel prices which increased from an average of
`36/litre in FY2010 to an average of `56 in FY2014 started to decline since
October 2014 (`63/litre) and are currently at ~`52/litre. In the near term, the
diesel prices are expected to be at current levels and this will have a favorable
impact on the company.
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Exhibit 5: Diesel as % of Net sales
153
198
268
343
407
21.5
22.3
23.7
25.9
27.2
15.0
17.0
19.0
21.0
23.0
25.0
27.0
29.0
-
50
100
150
200
250
300
350
400
450
FY2010 FY2011 FY2012 FY2013 FY2014
(%)
(` Cr)
Diesel Cost (LHS) % of Net Sales (RHS)
Source: Company, Angel Research
Exhibit 6: Average Diesel Price Trend
36
40
44
48
56
57
-
9.6
9.5
11.4
14.9
3.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
-
10
20
30
40
50
60
70
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015
(%)
(`/litre)
Average Price of Diesel (LHS) Change (RHS)
Source: Company, Angel Research, Indian Oil Corp.
GST implementation to benefit the logistics sector
The much awaited tax reform, GST, targeted to be rolled out by April 1, 2016, is
expected to have a positive impact on 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 a 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.
Additional Fleet to cater to improvement in demand
The share of road transport in India has been increasing in comparison to other
modes of transport owing to faster service and point-to-point connectivity. In the
coming years, the freight movement by roadways is expected to show robust
growth on account of improvement in the economy and improvement in
infrastructure. The company intends to utilize a major chunk (`67cr) from the fresh
issue to increase the fleet size of the goods transportation business by adding 248
new vehicles. Although a small addition to its massive fleet, this will enable VRL to
be well equipped for any increase in demand in the near future.
Sound Business Model
VRL intends to further grow its parcel delivery (comprising general parcel and
priority parcel delivery) business which has higher rates per load, and incremental
revenues with superior margins. More importantly, VRL has a diverse customer
base that is spread across all sectors. As of 9MFY2015, their largest customers in
the goods transportation business were 1.1% and top ten customers were 6.1% of
the total revenue. Ongoing accounts only comprised of 16.3% of revenues and
70% were “Paid” and “To Pay” customers. We believe that the company possesses
a very sound business model which will continue to pay off in the long run.
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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 margins have been declining from 18.7% in
FY2011 to 13.8% in FY2014 but have 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 Transport Corp, a similar
logistic company, trades at 25.0x its FY2015E earnings. Considering the
improving economic outlook, its pan-India presence and attractive valuations, we
recommend a Subscribe to the issue at the upper price band.
Exhibit 7: Valuations
Y/E Sales PAT
EPS RoE P/E P/B
V
EV/Sales
March (` cr) (` cr)
(`) (%) (x) (x) (x)
VRL Logistics FY2015E* 1,698 96
10.5 20.0 19.6 3.9 1.4
Transport Corp. Of India FY2015E 2,468 87
11.6 14.1 25.0 3.5 0.6
Source: Company, Angel Research; Note*FY2015E numbers are on annualized basis and considering subscription at the upper end of the price band
Key risks/concerns
Economic Slowdown: The performance of the sector is dependent on the state of
the economy. As a result, a slowdown in the Indian economy will have a negative
impact on the performance.
Short term fluctuation in Fuel prices: The company has a policy of revising its
freight charges periodically. However, the near term fluctuation in the fuel prices
will have a negative impact on the performance.
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RL Logistics
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7
Profit & Loss (Standalone)
Y/E March (` cr) FY2012 FY2013 FY2014
Total operating income 1130 1325 1494
% chg
2
7.2
17.3
12.7
Operating Expenses 791
963
1,091
% chg 31.1
2
1.7
13.4
Personnel 129
148
174
% chg
2
3.4
15.0
17.7
Other 18
19
22
% chg
2
2.2
5.1
11.3
Total Expenditure 938
1,130
1,287
EBITDA 192 195 207
% chg 15.7
1.7 5.8
(% of Net Sales) 17.0
14.7
13.8
Depreciation& Amortisation 70
82
87
EBIT 122 113 120
% chg
2
5.7
(7.7) 6.3
(% of Net Sales) 7.6
7.4
9.3
Interest & other Charges 65 59 60
Other Income 5
10
10
(% of Net Sales) 0.3
0.6
0.8
Recurring PBT 57 54 60
% chg 15.8
(6.0) 11.9
Exceptional items - - 7
PBT (reported) 62 64 77
Tax (15) 18
20
(% of PBT) (23.6)
2
8.1
2
5.7
PAT (reported) 77 46 57
Extraordinary Expense/(Inc.) - - 5
ADJ. PAT 77 46 52
% chg 125.7
(40.4) 14.0
(% of Net Sales) 4.8
3.0
4.0
Basic EPS (`) 10.9 6.5 6.1
Fully Diluted EPS (`) 10.9 6.5 6.1
% chg 125.7
(40.4) (5.8)
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Balance sheet (Standalone)
Y/E March (` cr) FY2012 FY2013 FY2014
SOURCES OF FUNDS
Equity Share Capital 71
181
86
Reserves& Surplus 117
108
221
Shareholders’ Funds 187
289
306
Total Loans 603
501
505
Other Long Term Liabilities 8 9 9
Long Term Provisions 2 3 3
Deferred Tax Liability (net) 69 78 83
Total Liabilities 870
879
907
APPLICATION OF FUNDS
Gross Block 1,010
1,106
1,217
Less: Acc. Depreciation 315
395
476
Less: Impairment - - -
Net Block 695
710
740
Capital Work-in-Progress 10
14
14
Lease adjustment - - -
Investments 0
0
0
Long Term Loans and advances 92
97
91
Other Non-current asset 1
1
3
Current Assets 135
143
130
Cash 14
15
15
Loans & Advances 15
19
20
Inventory 9
10
13
Debtors 79
85
80
Other current assets 19
14
2
Current liabilities 62
86
71
Net Current Assets 72
58
59
Misc. Exp. not written off - - -
Total Assets 870 879 907
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Cash flow statement (Standalone)
Y/E March (` cr) FY2012 FY2013 FY2014
Profit before tax 62
64 77
Depreciation 70
82 87
Change in Working Capital (16) 17 (2)
Direct taxes paid 15
(18) (20)
Others 36
18 61
Cash Flow from Operations 166
163 203
(Inc.)/Dec. in Fixed Assets (231) (100) (111)
(Inc.)/Dec. in Investments (0) 0 (0)
(Incr)/Decr In LT loans & adv. (15) (4) 4
Others 3
15 16
Cash Flow from Investing (242) (90) (91)
Issue of Equity - 110 (96)
Inc./(Dec.) in loans 161
(103) 5
Dividend Paid (Incl. Tax) (23) (61) (40)
Others (63) (18) 18
Cash Flow from Financing 75
(71) (113)
Inc./(Dec.) in Cash (2) 2 (0)
Opening Cash balances 15
14 15
Closing Cash balances 14
15 15
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Key Ratios
Y/E March FY2012 FY2013 FY2014
Valuation Ratio (x)
P/E (on FDEPS) 24.4 40.9 35.9
P/CEPS 12.8 14.6 13.5
P/BV 10.0 6.5 6.1
Dividend yield (%) 1.1 2.8 1.8
EV/Net sales 2.2 1.9 1.6
EV/EBITDA 12.8 12.6 11.4
EV / Total Assets 2.8 2.8 2.6
Per Share Data (`)
EPS (Basic) 10.9 6.5 6.1
EPS (fully diluted) 10.9 6.5 6.1
Cash EPS 20.7 18.1 16.2
DPS 2.8 7.4 4.0
Book Value 26.5 40.9 35.8
DuPont Analysis
EBIT margin 10.8 8.5 8.0
Tax retention ratio 1.2 0.7 0.7
Asset turnover (x) 1.5 1.6 1.7
ROIC (Post-tax) 20.6 9.6 10.3
Cost of Debt (Post Tax) 15.4 7.7 8.8
Leverage (x) 3.1 1.7 1.6
Operating ROE 37.0 12.7 12.7
Returns (%)
ROCE (Pre-tax) 15.8 12.9 13.4
Angel ROIC (Pre-tax) 16.7 13.3 13.9
ROE 47.8 19.2 17.5
Turnover ratios (x)
Asset TO (Gross Block) 1.3 1.3 1.3
Inventory / Net sales (days) 2.4 2.5 2.8
Receivables (days) 23.8 22.6 20.2
Payables (days) 23.4 23.9 22.2
WC cycle (ex-cash) (days) 15.6 13.3 12.3
Solvency ratios (x)
Net debt to equity 3.1 1.7 1.6
Net debt to EBITDA 3.1 2.5 2.4
Int. Coverage (EBIT/ Int.) 1.9 1.9 2.0
Note: *Valuation Ratio at the lower price band
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Disclosure of Interest Statement VRL Logistics
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%) Neutral (-5 to 5%)
over 12 months investment period): Reduce (-5% to -15%) Sell (< -15)
Note: We have not considered any Exposure below
`
1 lakh for Angel, its Group companies and Directors
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Analyst. Angel or its associates/analyst has not received any compensation / managed or co-managed public offering of securities of
the company covered by Analyst during the past twelve months. Angel/analyst has not served as an officer, director or employee of
company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst.
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