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Strong volume and price hikes drive earnings; outlook bright

* VRL’s 1QFY27 revenue grew 18% YoY to INR8.8b (11% above est.). EBITDA rose 23% YoY to INR1.87b (21% above est.). EBITDA margin stood at 21.2% (+80bp YoY and +40bp QoQ) vs. our est. of 19.5%.

* APAT increased to INR805m from INR500m in 1QFY26 (55% beat).

* Volume grew 9% YoY to 1.02MT, driven by the regaining of customers lost during earlier freight rate rationalization and the addition of new contractual customers. Realization rose 9% YoY to INR8,546/ton. VRL hiked prices in 1Q to offset the increase in fuel prices, which supported realization.

* Fuel costs remained stable at 25.4% of total income (vs. 25.4% in 1QFY26). However, lorry hire charges increased to 4.4% of total income (vs. 3.9% YoY), driven by higher lead distances, while vehicle running expenses rose to 5.5% from 4.6%, owing to longer lead distances and higher driver incentives.

* The board approved a buyback of up to 8750,000 fully paid-up equity shares, representing 5% of the total paid-up equity shares through a tender offer at INR320 per share for an aggregate consideration not exceeding INR2.8b.

* VRL delivered a strong performance in 1QFY27, driven by higher realizations and healthy 9% volume growth, the first meaningful volume recovery in over two years while sustaining robust EBITDA margins. Going ahead, management will continue to focus on driving tonnage growth as realization is expected to remain broadly stable. We raise our FY27/FY28 EPS estimates by 21%/9%, factoring in stronger-than-expected volume and realization growth, along with stable margins. We expect healthy volume growth in FY27, supported by branch additions, the recovery of previously lost customers, and higher tonnage from existing customers. We expect VRL to clock a CAGR of 7% in volume and 11%/11%/16% in revenue/EBITDA/PAT over FY26-28. Reiterate BUY with a revised TP of INR340 (based on 18x FY28E EPS)

Highlights from the management commentary

* Management expects to at least sustain the current realization level of INR8,546/ton or improve it further in the coming quarters, as the full impact of the freight rate hike taken in the middle of 1Q flows through.

* Internal fuel procurement declined to NIL during the quarter, as bulk fuel prices remained higher than retail pump prices. Average fuel procurement costs increased to INR93.73/liter from INR83.09/liter YoY.

* Management expects volume growth to remain healthy, aided by increasing tonnage from existing customers and the onboarding of new clients.

* Capex during the quarter stood at INR760m. Management maintained its FY27 capex guidance of INR2.2-2.4b, comprising INR1.0-1.2b for vehicle additions to support incremental volumes and INR1.2-1.6b for propertyrelated investments

Valuation and view

* Management expects to drive volume growth through higher business from existing customers and the addition of new clients while maintaining realizations at current levels and sustaining margins.

* We raise our FY27/FY28 EPS estimates by 21%/9%, factoring in stronger-thanexpected volume and realization growth, along with stable margins. We expect healthy volume growth in FY27, supported by branch additions, the recovery of previously lost customers and higher tonnage from existing customers. We expect VRL to clock a 7% volume CAGR and a revenue/EBITDA/PAT CAGR of 11%/11%/16% over FY26-28. Reiterate BUY with a revised TP of INR340 (based on 18x FY28E EPS).

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