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In-line quarter; near-term volumes to be hit by the restructuring of operations

Stable margins amid volume weakness; recovery likely in 2HFY26

• VRL Logistics (VRL)’s revenue grew 2% YoY to ~INR7.4b (-8% QoQ), in line with our estimate. Volume dipped 13% YoY to 0.93m tonnes, while realization improved 17% YoY to INR7,852/tonne, driven by price hikes. Volume drop was mainly due to contract restructuring and the exit of certain low-margin customers.
• Though volumes declined due to this restructuring, EBITDA grew 74% YoY to INR1.5b with margins at 20.4% (vs. est. 21.3%), aided by better realizations, lower fuel costs, reduced lorry hire charges, and improved procurement efficiency (refinery sourcing at 41.5% vs. 33% YoY).
• Strong operating performance led to an increase in APAT to INR500m from INR134m in 1QFY25 (in line). Capex incurred stood at INR150m in 1QFY26.
• The Board approved salary revision for the employees w.e.f. Aug’25. This would hurt the overall profitability to the tune of ~2-3% of the revenue.
• During 1Q FY26, VRL delivered a stable performance, driven by disciplined pricing and continued focus on profitability, even as volumes declined due to the strategic exit from low-margin contracts. The company demonstrated strong cost control through improved, efficient fuel procurement and reduced reliance on hired vehicles. This helped sustain healthy margins.
• Factoring in the near-term volume weakness and the impact of incremental employee costs from 2QFY26, we cut our FY26 EBITDA/APAT estimates by ~6%/7%. However, we broadly retain our FY27 estimates, as we continue to expect recovery in volumes and margin stability from 2HFY26, aided by festive demand and favorable monsoon. We expect VRL to clock flat volumes and a revenue/EBITDA/PAT CAGR of 6%/10%/19% over FY25-27. Reiterate BUY with a revised TP of INR710 (based on 24x FY27 EPS).

Highlights from the management commentary

• Management guided continued volume softness in 2QFY26 (8–9% YoY decline) but expects normalization in 3Q (flattish YoY) and an uptick in 4Q, driven by festive tailwinds and improved demand.
• Realizations are expected to remain stable, and no more pricing action is planned unless cost dynamics shift. FY26 volume growth is likely to be flattish YoY, but FY27 is poised for 7–8% growth.
• VRL’s consistent 100% hub-to-hub efficiency, low attrition rate, and in-house tech infrastructure (ERP, barcoding, GPS) reinforce its position as a highservice-quality logistics player. Door-to-door revenue share has increased to ~40% (vs. 25–28% YoY), reflecting a gradual shift toward express PTL offerings. Network optimization continues, with rationalized fleet size and selective branch closures. Capex is being aligned with tonnage trends, with additional branch/hub expansion planned as volume stabilizes.

Valuation and view

• VRL is well-positioned for long-term growth, supported by its strategic focus on profitable contracts, operational efficiency, and strong service reliability. The company’s investment in technology, disciplined cost management, and robust hub-to-hub network create a strong foundation to scale operations as demand recovers.
• While near-term headwinds persist, VRL’s approach to capacity addition, coupled with a stable pricing strategy and internal execution strengths, positions it to benefit from structural growth in India’s organized surface logistics sector.
• Factoring in the near-term volume weakness and the impact of incremental employee costs from 2QFY26, we cut our FY26 EBITDA/APAT estimates by ~6%/7%. However, we broadly retain our FY27 estimates, as we continue to expect recovery in volumes and margin stability from 2HFY26, aided by festive demand and favorable monsoon. We expect VRL to clock flat volumes and a revenue/EBITDA/PAT CAGR of 6%/10%/19% over FY25-27. Reiterate BUY with a revised TP of INR710 (based on 24x FY27 EPS).

Highlights from the management commentary Operational highlights

• The revenue growth was driven by improved realizations, while volumes declined by ~12–13% YoY due to the strategic exit from low-margin contracts.
• Margins remained robust despite higher administrative expenses, reflecting strong cost control.
• Internal fuel procurement improved significantly to 41.5% in 1QFY26 (vs. 33% YoY), reducing fuel cost as a percentage of revenue to 25% (from ~29%). Lorry hire charges declined from 7% to 4%, aided by higher own fleet utilization and reduced dependency on external vehicles.
• Administrative expenses rose to 2.2% of revenue (vs. 1.4% YoY), led by legal and professional fees, which are expected to persist for the next 2–3 quarters. A one-time loss on vehicle sale was also recorded, leading to higher other expenses.
• Employee costs remained stable at ~18% of revenue. A company-wide salary revision effective August 2025 was approved by the Board, which is expected to increase costs by ~2–3% of revenue in subsequent quarters.
• Capex during the quarter stood at INR150m, largely toward vehicle purchases. Fleet size stood at 5,949 vehicles (vs. 6,127 YoY), reflecting improved asset utilization and selective scrapping of high-maintenance vehicles.
• VRL maintains the lowest attrition rate in the industry and continues to deliver high service levels with strong human capital and operational systems

Operational efficiency & network expansion

• VRL sustained 100% hub-to-hub efficiency across its network, enabling reduced turnaround time and improved vehicle loading.
• Investments in proprietary in-house digital infrastructure, including GPS tracking, real-time route optimization, OTP-based vehicle unlocking, consignment barcoding, and CCTV-based security systems, have contributed to better claim ratios and cost savings.
• Door-to-door services accounted for ~38–40% of revenue in 1QFY26 (vs. 25– 28% in 1QFY25), reflecting an evolving positioning toward express PTL offerings.
• A net reduction of 12 branches was recorded during the quarter (18 opened, 30 closed), part of a strategy to shut underperforming or low-utilization locations.
• While VRL continues to explore expansion in the eastern and northeastern regions, branch rollout remains cautious and linked to business stability.

Guidance

• Volume growth is expected to remain negative in 2QFY26 with a YoY decline of 8–9%, largely reflecting the lagged impact of the recently completed contract restructuring and realignment of the customer base. However, volumes are expected to stabilize in 3QFY26 due to a strong festive demand cycle and return to YoY growth in 4QFY26.
• Overall, management expects FY26 volumes to remain flat or show marginal growth, with a stronger recovery expected in FY27 (guided growth of 7–8% YoY).
• Realizations are expected to be maintained at current levels (~INR7,800/ton) in 2QFY26. Management has reiterated its stance of not changing freight rates unless there is a meaningful decline in input costs, such as fuel.
• EBITDA margin is expected to normalize to 18–19% over 2QFY26 and 3QFY26, factoring in higher administrative costs (professional/legal fees) and the salary increment effective from August 2025. Margin impact from employee cost is anticipated to be 2% in 2Q and ~3% from 3Q onwards.
• Branch additions are expected to pick up pace later in the fiscal year. The company had earlier guided for 80–100 new branches annually, but actual additions in FY26 are likely to be lower as the focus remains on price stabilization and profitability-led expansion.

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