The shares of VRL Logistics hit a new high in Thursday’s trade on the back of the new CAPEX outlook. The stock opened around ₹603, up 6.3 percent from the previous close on the BSE, and reached an intraday high of ₹658, setting a new 52-week high. In the past week, the stock rallied 17.05 percent, and it has rallied 28.17 percent in the last 3 months.
Why VRL Logistics shares have hit a new high? We decode
On April 6, 2022, VRL Logistics (VRLL) announced a CAPEX plan of Rs. 560 cr to purchase 1,600 trucks (25,000 t carrying capacity) spread over the next 12–18 months. This Capex is essential to: (1) replace its older fleet that is moving out due to the vehicle scrapping policy and (2) capture the pickup in demand in the LTL segment.
The proposed Capex would result in a net capacity addition of 13,000t (around 20% of the existing capacity). This would allow VRLL to cater to the expected growth in industry volumes and reduce VRLL’s dependence on hired vehicles, Says Motilal Oswal in a research report.
VRLL currently has a fleet capacity of 69,000 t and with this Capex, there would be a net capacity addition of 20% (adjusted for scrappage of old trucks). The Capex would be funded by internal accruals and debt, it added.
The proposed 1,600 vehicles are likely to have the latest features and technology that would help in the reduction of maintenance time, fewer stopovers, and better efficiency, resulting in better uptime.
The projected Capex reinforces the robust demand outlook, which VRL has been indicating for the last few quarters, the report says.
Further, it said that VRL has a comfortable balance sheet position and strong free cash flow generation, which will enable it to meet the Capex requirement with an additional debt of INR 3–3.5 billion.
VRL Logistics Ltd has signed a Memorandum of Understanding (MOU) on April 18, 2022, with Ratna Cements (Yadwad) Limited (RCL) for the transfer of the Wind Power (Sale of Power) undertaking along with all underlying assets and liabilities as a going concern on a slump sale basis.
The Wind Power Undertaking of the company was initially comprised of 34 wind turbine generators with a capacity of 42.5 MW. As of date, the said project comprises 32 wind turbine generators with a capacity of 40 MW. These turbines are installed at Kappatgudda in Karnataka.
The windmill division of VRL recorded revenue of ₹17.57 crore (0.99% of the standalone revenue of the company, with an EBIT of ₹80.83 lakhs).
The management of the company is looking to dispose of this undertaking, considering the limited life balance of the said machines, as well as to focus on its goods transport business, which is the major business segment of the company.
VRL Logistics reported a total income of Rs. 683.2976 crores during the period ended December 31, 2021, as compared to Rs. 638.1376 crores during the period ended September 30, 2021.
The company has posted a net profit of Rs. 60.4 crores for the period ended December 31, 2021, as against a net profit of Rs. 49.47 crores for the period ended September 30, 2021.
Motital Oswal believes VRLL would be very well placed to capitalise on the growth opportunity after this capacity addition. With a strong balance sheet, it says, VRLL would comfortably manage the capex funding by availing an additional debt of INR3-3.5b along with internal accruals.
Motital Oswal has revised their numbers to incorporate the higher capex numbers as well as the expected rise in debt.
The brokerage house now expects VRL to clock a revenue/EBITDA/PAT CAGR of 22%/29%/63%, respectively, over FY21-24. The stock trades at 22x FY24E EPS. They maintain a 'BUY' rating with a TP of ₹665 (premised on 30x FY24E EPS).
An average of 10 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.