IGI Logo

1 Following the recent sale of its bus business, VRLL has transformed into a pure play goods transport (GT) player that focuses on the highly profitable less-than-truckload (LTL) segment. VRLL's goods transport segment's tonnage growth is expected to be driven by multiple factors. Firstly, the addition of new branches (127 new branches added in 9MFY23) will contribute to tonnage growth, particularly in new geographies. Branches added in FY22 and in 9MFY23 contributed ~12% of total tonnage in 3QFY23. Secondly, there will be an increase in the number of customers as there is a growing need for a pan-India service provider, which will contribute to tonnage growth. Additionally, VRLL is likely to gain market share from smaller unorganized competitors due to increasing compliance requirements.

* As of Mar’23, VRLL owned 5,717 units of GT vehicles. VRLL has recently ordered 1,667 trucks for INR 6.97b, as part of its fleet expansion strategy and in compliance with the vehicle scrappage policy. This acquisition will increase their gross capacity to ~30,092MT. Although the Capex amounts to INR6.97b as per the list price of trucks, the actual capex is expected to be lower. Also, we believe the Capex would be spread over 1.5 years and the entire new fleet would be in operation by mid FY25.

* Further, we believe the sale of the bus segment and the wind segment would be a positive for VRL as it would be able to better focus on the high growth GT business. Also, the cash accruing to VRL with this sale (~INR 2.0b post tax) would be used to partially fund the capex of truck fleet addition. VRLL also completed a buyback worth INR612m.

* Going forward, we believe VRLL to benefit from the growth opportunity in the LTL business and from the extensive branch additions in new geographies. We expect VRL to clock a revenue/EBITDA/PAT CAGR of ~12%/17%/28% over FY23-25. The stock trades at 20x FY25E EPS. We reiterate our Buy rating, with a TP of INR770 (25x FY25E EPS).

Fleet expansion to aid market share gains and bring in operational efficiency

* Implementation of Vehicle Scrapping Policy envisages replacing existing older vehicles. In FY24, VRLL is expected to withdraw ~1,220 vehicles, which have been in operation for more than 15 years. Subsequently, VRL has ordered 1,667 trucks with Ashok Leyland (1,560 trucks) and Tata Motors (107 trucks) for INR 6.97b, which will result in an addition of 30,092 MT to its capacity.

* We expect the capex to be spread over 1.5 years and the entire new fleet would be operational by mid FY25.

* The proposed capex is expected to help the company meet its business demand in due course and reduce some dependence on hired vehicles. This would also help increase efficiency as new vehicles are technologically more advanced and fuel efficient.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer