Buy VRL Logistics Ltd For Target Rs.670 by Motilal Oswal Financial Services Ltd
Revenue in line; lower fuel costs drive EBITDA beat
Network expansion to drive volumes; strong margins to sustain
* VRL Logistics (VRLL)’s 3QFY25 revenue grew 12% YoY (+3% QoQ) to ~INR8.3b (in line). Volumes inched up 1% YoY to 1.1m tons, while realizations improved 11% YoY. Realization per ton increased to INR7,390 vs. INR6,669 in 3QFY24 and INR7,241 in 2QFY25. This higher realization, coupled with 1% YoY growth in volumes, played a key role in driving revenue growth.
* EBITDA margin stood at 20.2% vs. our estimate of 16.2%. The margins were supported by the price hikes implemented at the end of 1QFY25. Further, the fuel costs as a % of revenue declined as the company procured more from refineries (from 22% in 3QFY24 to 40% in 3QFY25). Further, the lorry hire charges as a % of revenue declined due to an improvement in km run by VRL-owned vehicles.
* EBITDA jumped 76% YoY to INR1.7b in 3QFY25 (26% above our estimate). Strong operating performance led to an increase in APAT to INR594m in 3QFY25 from INR 137m in 3QFY24 (our estimate was INR419m).
* Capex in 3QFY25 stood at INR2.8b, including the Bangalore Hub. Net debt rose to INR4.65b at the end of Dec’24 (INR2.6b at FY24 end).
* VRLL’s strong 3QFY25 performance was driven by cost optimization and freight rate hikes, despite muted volume growth. EBITDA margins are expected to be sustained at 18%, supported by efficiencies in fuel procurement and fleet movement. The company plans to reduce debt using its ~INR1b quarterly operating cash flow generation, expand its fleet by ~200 vehicles, and add 80-100 new branches in FY26 to strengthen its logistics network.
* Factoring in better-than-expected margins with sustainable cost optimization measures, we increase our near-term FY25 EBITDA/APAT estimates by ~9%/14% while largely retaining EPS estimates for FY26/FY27. We expect VRLL to clock a CAGR of 6%/10%/19%/36% in volume/revenue/ EBITDA/PAT over FY24-27. We reiterate our BUY rating with a TP of INR670 (based on 28x Sep’26 EPS).
Highlights from the management commentary
* VRLL achieved its highest-ever EBITDA margin of 20.2% in 3Q, primarily driven by lower fuel costs due to increased bulk fuel purchases from refineries, lower fuel prices, and enhanced vehicle turnaround times. Lower fuel cost was despite higher fuel consumption during the quarter, which increased by 3.4% YoY in 3Q and 4.9% in 9MFY25. The share of bulk fuel purchases from refineries rose from ~22% to 39.9% in 3Q and from 27.9% to 36.3% for 9MFY25.
* The company incurred a capex of INR2.8b in 3QFY25 and INR3.95b in 9MFY25, with major investments in property acquisitions in Bengaluru, Mysuru, and Mangaluru. Due to these investments, net debt increased from INR2.6b in Mar’24 to INR4.7b in Dec’24.
* In FY26, VRL anticipates overall revenue growth of 12-13%, with a more balanced volume growth pattern likely to emerge after 1QFY26. Beyond 1QFY26, volume growth is expected to return to 8-10%.
* Management expects to sustain EBITDA margins at around 18% in FY26, along with projected revenue growth of 12-13%. VRL will also continue to focus on bulk fuel purchases, which currently provide a cost advantage of INR5-6 per liter.
Valuation and view
* VRLL’s 3QFY25 performance was robust, driven by price hikes, while volumes remained muted. Looking ahead, the company expects its focus on branch expansion to continue, which should drive its volume growth through market share gains. Sustaining the margin profile would be a key monitorable ahead.
* We expect VRLL to clock a CAGR of 6%/10%/15%/37% in volume/revenue/ EBITDA/PAT over FY24-27. We reiterate our BUY rating with a revised TP of INR670 (based on 28x Sep’26 EPS).
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