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A mixed bag
Weak topline performance; healthy improvement in margins
VRL logistics (VRL) reported mixed set of numbers during Q4 FY19. Its topline performance remained subdued with ~5% yoy growth as volumes in its two large businesses – a) Goods Transport (GT; volume in tonnage) and Passenger Transport (PT; number of passengers travelled) improved by mere ~1.5% yoy and ~3% yoy respectively. However, healthy improvement witnessed in the EBITDA margins of a) GT business - improved to 13.3% (vis-à-vis 10.1% in Q4 FY18)- largely benefitted from fall in diesel prices and increase in axle load factor, and b) PT business - up 571bps yoy to ~10%, aided overall margin performance. Flat depreciation cost with robust operating performance led to 71% yoy bottoline growth. Going forward, its a) capacity additions- added 421 goods vehicles in FY19; targeting ~100 trucks more in FY20 and b) consistent increase in client base and c) improvement in realization - benefits arising from changes in the axle load norms in relation to MoRTH notification, to led VRL’s topline performance over next couple of years. Its ability to passthough any fluactuations in diesel prices to clients likely to stabilize margins at current levels. At CMP, the stock is trading at ~27x FY19 P/E.
Industry tailwinds and cost advantages – key positives for VRL
Prioritization of owned vehicles, usage of biodiesels, redemption benefits from IOCL, in-house goods vehicle body design facilities and economies of scale in spares procurement provides cost advantages to VRL. In addition, benefits arising from implementation of GST and eway bill are benefiting organized players. Also, partly shifting of the freight markets towards less-than-truck load on account of accelerated warehouse consolidation places VRL in a sweet spot.
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