VRL Logistics - ICICI Direct

IPO Review
April 9, 2015
Rating matrix
VRL Logistics
Rating
:
Unrated
Price band | 195 – 205
Issue Details
Issue opens
15-Apr-15
Issue closes
17-Apr-15
Issue size (| crore)
451 - 468
No of shares on offer (crore)
2.28
Fresh Issue
0.58
PE Exit
1.70
QIB
50%
Non-institutional
0.15
Retail
35%
Minimum lot size
65
Investment rationale
Well established player with pan-India presence
VRL, which has been operating for over 38 years, has managed to
establish a brand name with its extensive goods transportation network
across India. With 970 branches cross 70 locations, the company caters to
a diverse mix of customers including corporate, small and medium
enterprises (SMEs), distributors as well as traders.
Objects of issue
Purchase of goods transportation vehicles
Integrated hub-and-spoke model enabling optimised margins
Repayment / Prepayment of borrowings
Shareholding Pattern
Pre Issue
Post Issue
Promoter and Promoter group
77.2
70.0
Others
22.8
5.0
Public
-
25.0
Valuation Parameters
| crore
VRL Logistics (VRL) is one of the leading pan-India surface logistics and
parcel delivery service providers. The company was founded in 1976. VRL
is currently the largest fleet owner of commercial vehicles in India with a
fleet size of 3546 owned vehicles. The company operates through 624
branches of which 48 serve as strategic transhipment hubs and 346
franchises. VRL also provides luxury bus services across Karnataka,
Maharashtra, Goa, Andhra Pradesh, Telengana, Tamil Nadu, Gujarat as
well as Rajasthan. As part of the expansion plan, it is planning to increase
its fleet size and reduce debt, which is the objective of this IPO.
FY11
FY12
FY13
FY14
9MFY15
Total Income
892.9
1,135.3
1,335.3
1,503.8
1,279.4
EBITDA
170.0
196.8
205.0
216.6
219.5
EBITDA Margin (%)
19.0
17.3
15.4
14.4
17.2
Depreciation
50.9
69.6
82.3
86.6
69.2
Interest
47.9
65.1
59.1
59.9
45.0
Adjusted PAT
51.7
76.7
45.7
50.5
71.7
Research Analyst
Bharat Chhoda
[email protected]
Ankit Panchmatia
[email protected]
VRL has 48 transhipment hubs, which enables it to consolidate and
distribute consignments effectively. This model enables the company to
cater to a wide range of customers with multiple pick-ups and delivery
points. This is done by optimal aggregation of less than truck load (LTL)
and full truck load (FTL) freight parcels on select routes, which will
maximise revenue per truck.
In-house capability in technology, vehicle customisation and maintenance
VRL has developed in-house software technology capability, which helps
it to track vehicle maintenance and optimise load planning. Further, its inhouse vehicle body designing facility at Hubballi enables the company to
fabricate vehicles with lighter and longer bodies to carry higher tonnage.
An additional 14 satellite workshops in other cities/towns across India
minimises on-road repair expense and downtime. These capabilities
improve the utilisation level, further enhancing the operating margins.
Concerns
•
•
•
•
•
•
Inability to pass on any increase in fuel costs & other expenses
Legal proceedings against the company
Higher dependence on centralised hub at Hubballi
Competition from existing and new players
Risk of accidents and damage or theft of cargo
Low freight volumes and passenger occupancy due to a
slowdown in the overall economic environment
Priced at FY15E (annualised) PE multiple of 18x on lower band; 19x on
higher band
At the IPO price band of | 195-205, the stock is available at a multiple of
18-19x FY15E PE (post dilution).
ICICI Securities Ltd | Retail Equity Research
Company Background
Operational Data
Particulars
FY12
FY13
FY14 9MFY15
Sale of power
25.39
27.11
25.01
19.87
Other sales
10.15
6.04
6.09
-
Goods transport
858.51
987.81
1,128.12
971.48
Bus operations
217.81
284.84
308.11
255.94
Income from hotel
0.00
0.00
1.02
1.44
Air chartering
4.77
4.17
7.75
8.80
Courier Service
4.50
4.52
5.31
4.69
9.26
11.01
12.38
11.58
Sale of products
Sale of services
Other income
Sale of Scrap
Total
1130.38 1325.50
1493.78 1273.81
Assets
Tangible Assets
694.20
710.09
739.36
693.75
No. of Vehicles
Goods transport
Passenger buses
Total
3079.00 3088.00
449.00
502.00
3528.00 3590.00
3352.00 3546.00
522.00
455.00
3874.00 4001.00
Source: RHP
Vijayanand Roadlines Ltd (VRL), founded in 1976, is one of the leading
surface logistics and parcel delivery service providers. The company
mainly provides less than truckload services (LTL) for general and priority
parcels through its widespread transportation network of 603 branches
and 346 agencies. With a fleet of 3,546 goods transportation trucks, the
company caters to a broad range of industries like FMCG, textiles,
apparel, furniture, metal and metal products, automotive parts, etc.
Furthermore, the diverse mix of customers including corporates, SMEs,
distributors and traders garners higher volumes for the company. This, in
turn results in higher freight density through various geographies, thereby
improving asset utilisation. For FY14, the largest customer and top 10
customers contributed only 0.9% and 5.4% of total revenues from the
goods transportation business. The company manages parcels through
48 strategically located transhipment hubs to consolidate and redistribute goods efficiently. The strategy behind owning vehicles is to
reduce hiring & operational costs and maintain the reputation for timely
delivery.
VRL has a dedicated in-house vehicle body design facility at Hubballi,
which enables it to increase the life of its vehicles, spare parts and
components. This facility develops customised configurations to ensure a
higher payload capacity, minimise on-road repair expense and undertake
periodic preventive and remedial maintenance, thereby reducing the
vehicle downtime and improving vehicle efficiencies. The huge fleet size
enables the company to acquire spare parts and ancillaries at a bargain.
The company also provides passenger bus services with a fleet of 308
buses across high density urban commuter cities like Bengaluru, Mumbai,
Pune, Hyderabad and Panjim and also connect tier-II and tier-III cities. As
on December 2014, the company has 15,000 employees, including 6,000
drivers with permanent benefits. These drivers are incentivised on the
basis of safety record, timeliness, distance covered and fuel consumption.
VRL, with over 38 years of operations and one of the largest distribution
networks in India, has established a brand name in the logistics sector.
Revenues have grown at 20% CAGR during FY09-13 while the EBITDA
margin of the company has consistently remained above 15% since FY10
with a RoCE of 20% and RoE of 17% in FY14.
Exhibit 1: Key financials
| crore
FY10
FY11
FY12
FY13
FY14
9MFY15
714.6
892.9
1,135.3
1,335.3
1,503.8
1,279.4
NA
25.0
27.1
17.6
12.6
NA
141.1
170.0
196.8
205.0
216.6
219.5
EBITDA Margin (%)
19.7
19.0
17.3
15.4
14.4
17.2
Depreciation
46.4
50.9
69.6
82.3
86.6
69.2
Interest
50.8
47.9
65.1
59.1
59.9
45.0
Adjusted PAT
28.8
51.7
76.7
45.7
50.5
71.7
4.0
5.8
6.8
3.4
3.4
5.6
EPS (|)
4.1
7.3
10.9
2.5
6.7
8.4
Post issue diluted EPS (|)
3.2
5.7
8.5
5.1
6.4
8.0
Total Income
Growth YoY (%)
EBITDA
Adjusted PAT Margin (%)
Source: RHP
ICICI Securities Ltd | Retail Equity Research
Page 2
Objects of issue
The company aims to utilise the proceeds from the issue, after deduction
of issue related expenses, to expand its existing fleet of goods
transportation vehicles and utilise | 28 crore from the net proceeds
towards repayment/prepayment of certain loans.
Exhibit 2: Object of issue
Estimated net proceeds utilisation during fiscal
Amount which will be
Amounts deployed as
Total estimated cost
financed from net
on March 2015
proceeds
2015
2016
2017
-
67.42
-
51.78
15.63
28.00
-
28.00
*
28.00
*
-
*
*
*
Particulars (amount in | crore)
Purchase of goods transportation vehicles
67.42
Repayment / prepayment of borrowings
Total
*
Source: RHP
Exhibit 3: Detailed break up of purchase of vehicles
Detailed break-up of per unit cost
Sr. no
Type of Vehicle
Purchase Qty.
1
Ashok Leyland - 1212
2
Total Per Unit Cost
(|)
Total Amt (Crs)
Cost of Chasis (|)
Cost of body
building (|)
Insurance Cost (|)
Registration
charges (|)
30
1242760
325000
33102
25636
1626498
4.88
Ashok Leyland - 3723
218
2328770
450000
49548
40288
2868606
62.54
Total
248
*
*
*
*
4,495,104.00
67.42
Source: RHP
Current vehicle profile
Exhibit 4: Fleet profile for goods transportation (9MFY15)
As of
Light
Small Vehicles Commercial
Vehicles
Heavy
Commercial Car Carriers
Vehicles
Tankers
Cranes
Total Vehicles
Owned
FY10
180
842
1,480
-
7
10
2,519
FY11
171
892
1,575
-
7
10
2,655
FY12
139
883
1,916
102
27
12
3,079
FY13
122
883
1,941
102
27
13
3,088
FY14
122
882
2,210
102
23
13
3,352
9MFY15
123
904
2,290
102
14
13
3,446
Source: RHP
Exhibit 5: Fleet profile for passenger buses (9MFY15)
As of
2010
2011
2012
2013
2014
9MFY15
Fleet Size
211
323
449
502
522
455
Source: RHP
ICICI Securities Ltd | Retail Equity Research
Page 3
Key Financials
Exhibit 6: P&L summary
| crore
Exhibit 7: Balance sheet summary
CAGR
FY14 9MFY15 (FY10-14)
FY10
FY11
FY12
FY13
714.6
892.9
1,135.3
1,335.3
1,503.8
1,279.4
NA
25.0
27.1
17.6
12.6
NA
141.1
170.0
196.8
205.0
216.6
219.5
EBITDA Margin (%)
19.7
19.0
17.3
15.4
14.4
17.2
Depreciation
46.4
50.9
69.6
82.3
86.6
69.2
Interest
50.8
47.9
65.1
59.1
59.9
45.0
Adjusted PAT
28.8
51.7
76.7
45.7
50.5
71.7
PAT Margin (%)
4.0
5.8
6.8
3.4
3.4
EPS (|)
4.1
7.3
10.9
2.5
6.7
Diluted EPS (|)
3.2
5.7
8.5
5.1
6.4
8.0
Total Income
Growth YoY (%)
EBITDA
FY09
FY10
FY11
FY12
20.4
| crore
Total non-current assets
533.6
618.7
797.6
821.8
848.0
FY13 9MFY14
793.7
- Tangible fixed assets
693.7
739.4
710.1
694.2
498.8
469.0
11.3
Total Current assets
85.9
115.8
134.7
143.4
129.9
179.2
Total Assets
619.5
734.5
932.3
965.2
977.9
972.9
Total Non-current liabilities
299.0
353.0
482.7
374.3
347.7
310.1
Total current liabilities
213.9
248.0
262.3
301.4
323.6
326.0
Total Shareholders Funds
106.6
133.6
187.3
289.4
306.5
336.8
5.6
- Equity Share Capital
70.7
70.7
70.7
181.2
85.5
85.5
8.4
- Reserves & Surplus
2.1
6.6
30.8
53.3
79.4
110.4
619.5
734.5
932.3
965.2
977.9
972.9
Source: RHP
15.1
Total Liabilities
Source: RHP
Exhibit 8: List of agencies, branches & transhipment hubs
Source: RHP
ICICI Securities Ltd | Retail Equity Research
Page 4
Key concerns
Inability to pass on any increase in fuel & other costs
The most significant costs include fuel costs, toll charges as well as rent.
In case there is an increase in such costs and an inability to pass them on
to customers that will adversely affect the company’s profitability. As on
9MFY15, fuel costs were 30% of total operating costs. Deregulated diesel
prices in India, withdrawal of subsidies on diesel prices, and fluctuations
of diesel prices will impact operating expenses and further dampen the
profitability.
Promoters and directors involved in a number of legal proceedings
The company, promoters and directors are involved in number of legal
proceedings, which are currently being adjudicated before various courts,
tribunals and other forums. These include certain criminal and tax
proceedings, which, in case of an adverse outcome, could affect the
company’s business, operations as well as financials.
Insufficient freight volumes and passenger occupancy
The business is dependent on availability of sufficient freight volumes and
passenger occupancy to achieve acceptable margins or avoid losses. The
high fixed costs do not vary significantly with variations in freight
volumes or the number of passengers carried while a relatively small
change in freight volumes, passenger occupancy, freight rates or the
price paid per ticket can have a significant effect on results of operations.
Inability to attract, recruit and retain qualified and experienced drivers
A shortage of drivers could affect the company’s ability to meet goods
transportation delivery schedules or provide quality services to bus
passengers. Inability to attract and retain a sufficient number of qualified
drivers, could compel the company to increase its reliance on hired
transportation, reduce the number of pick-ups and deliveries and more
idle vehicles. This would adversely affect the results of operations.
Higher dependence on centralised hub at Hubballi
The Hubballi facility in Karnataka includes a vehicle maintenance facility in
addition to serving as a centralised hub for the company. Interruptions in
the same due to a breakdown or failure of equipment, power supply or
processes, natural disasters and accidents could significantly impact
maintenance related activities for the company’s vehicles.
Domestic economic slowdown may adversely affect business
The performance and growth of the business are dependent on the
health of the overall Indian economy. As a result, any slowdown in the
domestic economy could adversely affect the business, operations,
financial conditions as well as prospects.
ICICI Securities Ltd | Retail Equity Research
Page 5
RATING RATIONALE
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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ICICI Securities Ltd | Retail Equity Research
Page 6
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Page 7