After rising nearly 94% in the last one year, from ₹335.50 to ₹649.10, domestic brokerage firm Motilal Oswal believes VRL logistics has a long way to go, given the sale of VRL logistics' bus division for ₹230 crore to Vijayanand Travels, an entity owned by the promoter group.
As per the management, the average revenue per passenger in the bus segment has been declining, while costs have been on the rise. Due to rising competition, VRLL has been unable to pass on the cost increase to customers. The majority of its bus fleet is over nine years old and is due for replacement, which will require a higher capex. VRLL has seen a sharp drop in capacity utilisation of buses to 50% in FY22 from 60% in FY18. Due to the above-mentioned concerns and a weakening outlook, the management has decided to exit this business, said the brokerage firm.
Proceeds from the sale of the bus segment will help the company to partially fund truck fleet additions It may take on lower debt than that estimated earlier. While EBITDA margins could be higher in FY24 than previously anticipated, as the bus segment generated lower margins and was a drag on overall profitability, the brokerage added.
Taking all of these factors into consideration, Motilal Oswal has now revised its target price on the stock to ₹860/share (28x FY24E EPS) from ₹800/share, which hints toward an upside potential of 32.49% from the CMP. It also expects VRLL to clock a revenue/EBITDA/PAT CAGR of 14%/17%/30% over FY22–24.
The stock rose 31 percent from ₹490.40 to ₹645.60 since April after the company announced a ₹560 crore CAPEX plan to purchase 1,600 trucks (25,000 t carrying capacity) spread over the next 12–18 months. This capex plan will help the company to replace the older fleet that is moving out due to the vehicle scrapping policy and capture the pickup in demand in the LTL segment.
The wind power business was recently sold for ₹480 million, and VRL has received full consideration in August 2022. This would be used towards capex.
For the first quarter of FY23, the company posted a consolidated net profit of ₹49.4 crore as against a net loss of ₹6 crore in the corresponding quarter of the preceding fiscal. It delivered an ROE of 24.57% in the year ending March 31, 2022, outperforming its 5-year average of 15.30%.
For the last few quarters, the company's revenue has been consistently on the rise. It reported revenue of ₹417.3 crore for the quarter ending in June 2021, and revenue of ₹7201.1 for the same period ending in June 2022 marked the company's highest quarterly turnover.
The operating profit in the June quarter was ₹114.4 crore, up 216.89% from ₹36.1 crore in the previous quarter of the same fiscal. The EBITDA margin was 15.95%, up 724 basis points year on year.
On September 17, the Indian government unveiled the National Logistics policy, which aims to reduce transport-related challenges, save money for manufacturers, and prevent waste of agricultural products. According to experts, this policy will aid logistics companies going forward.
VRL Logistics Ltd is one of the leading logistics service providers in the country. The service offerings of the company in the logistics space are goods transport, passenger transport, and courier services apart from the transport of passengers by air and wind power generation businesses.
An average of 08 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.