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  • Stock recommendation: VRL Logistics Ltd – BUY – TP Rs.395

    Publish date: August 13, 2018

    Result Update

    A Mixed Bag - Strong performance of the bus segment, strong revenue growth in the trucking segment, lower interest cost and higher fuel prices were the highlights of the results for VRL Logistics (VRL). In terms of performance, Q1FY19 revenue was in-line, but margins lower than estimate. There was significant improvement in the BS with further debt reduction.

    Key Highlights

    • Q1 is a seasonally strong quarter for VRL in which the company has reported sales at Rs 5.3 bn (+7.5% YoY) highest ever for the company, with benefits of GST implementation and E-way bill occurring to the company.
    • Performance of the bus division has been healthy for the quarter with sales of 1.07 bn (+29% QoQ and +3% YoY)
    • But increasing crude prices and simultaneous increase in diesel prices (diesel prices in Mumbai is +20% YoY) and increasing cost of regulatory compliance (GST implementation) has impacted operational performance. Company reported EBIDTA of Rs 603 mn with EBIDTA margin of 11.4% (+230 bps QoQ and -330 bps YoY).
    • The company has repaid debt during the quarter. Debt currently stands at Rs 500 mn (from Rs 1740 mn in March end 2017) which lowered the interest cost in the quarter
    • Consequently PAT was reported Rs 242 mn below our estimate of Rs 294 mn
    • Company has guided for 10% YoY volume growth over FY18 to FY20E
    • The Company has completed the buy-back of 9,00,000 Equity Shares

    Valuation & Outlook

    • We see VRL as a Logistics player which has created a niche for itself in the transport industry and a player who has overcome the nuances of the industry through effective practices within the company. This has enabled the company to outperform its peers in every financial parameter. The GST Act, Motor Vehicle Act and E-way bill are expected to improve business prospects of the company with full benefits accruing from FY19E.
    • We estimate strong earnings growth in medium term for the company with improvement in EBIDTA margins and return ratios over FY18-20E. However, with our aggressive estimates, rising diesel prices and weak Q1FY19, we have marginally lowered our estimates. However, we continue to remain positive on the company and value the company at 24x FY20 earnings and Recommend BUY with a revised TP of Rs 395 (from Rs 440).


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