Published : October 27, 2017
VRL Logistics Ltd, a hidden gem in Indian surface logistics sector will be among one the largest beneficiaries of GST. Some other development in recent past as well is indicating for its candidature in a multi-bagger category. Nationwide presence, owned vehicles customised solutions, and quality services differentiate VRL from its competitors. For long-term association and managing good relations with their customers, the company is offering their vehicles for branding.
The revenue of the company streams from both surface logistics solutions, i.e., logistics and travel. The management seems to be shareholders friendly. Last year the management gave exit route to the only private equity shareholder with good returns. VRL is constantly developing its own resources to grow and expand while keeping a check on the debt. In last five years, the fleet size had expanded widely and long-term debt also reduced drastically. This is showing the efficiency of the management.
The surface logistics player has low equity base with 9.12 crore of equities. And most of the shares are being held in the hands of long-term investors. Long-term investors tend to hold their holdings in any company over a longer period of time thus providing cushions against wild fluctuation in the share prices.
Thus, the logic is clear and are explained briefly in below paragraphs. Logistics is one of the building blocks of any nations economic growth. And VRL Logistics is playing promptly in the surface logistics which is yet to be rewarded and reflected in its share price. Hence, a good multi-bagger share at current levels.
Surface logistics sector in India is largely dominated by unorganized players. Most of the clients of these unorganized players are finding it hard to figure out options in the GST regime and way to go for compliance. They are also facing problem in technology adaptation and sticking to monthly tax payment options under the new tax system. The monthly tax payment aroused working capital problem as most of the client’s payment come with a lag of more than a month or so.
These issues are compelling most of the customers to look at organized players for their transport solutions. The interstate transportation of goods to become more efficient with GST and final implementation of the e-way bill in April 2018. This, in the long run, is expected to make inland transport to become more cost-effective. Also, it will strengthen the organized players’ competitive position vis-a-vis unorganized players.
In order to bring unorganized players into the net of the organized structure of logistics, the government has also e-way bill. It will not only help easing inter-state traffic movement but will also help standardize the process to bring transparency in the system.
The sole reason behind such take is that the GST regime will allow customers to offset service tax, which, if dealing with an unorganized player will not be possible. Further, the logistics companies are anticipated to start reflecting the positive impact of GST and e-way bills in earnings from 2018-19 onwards in a more meaningful manner. VRL Logistics is among one of the largest beneficiaries out of this.
With national presence and services spread across 23 states and 4 Union Territories, own 419 passenger transport vehicles and 3941 goods transport vehicles. For its quality services, the company bagged some prestigious awards as well.
The competent management of VRL is focused on cost reduction initiatives without compromising on quality. They have successfully reduced overall debt and rate of interest on existing loans. Long-term borrowings of the company came down to Rs.59.55 Cr as on March 2017 from Rs.285.16 Cr in March 2013.
The company is quite aggressively moving from traditional setups towards integration of IT and technology. This is helping reduce the costs of running the business on one hand and meet the service demands on time on the other.
Also, the management is constantly striving to improve against the following challenges:
1. External challenging environment
(i). Government initiatives to improve road infra
(ii). GST Act and Motor Vehicle Act
(iii). Healthy GDP growth
(i). Effective management of fuel cost
(ii). Effective internal control systems
(iii). A strong management team
The company has done all its homework ahead for adopting all modifications in the logistic ecosystem. They are confident that the company is 100 percent prepared to adopt GST and be compliant.
GST is going to revamp the warehousing requirement and it is highly likely that most of the interstate players to adopt the hub and spoke model and drive business to efficient transportation solutions providers. The implementation of GST from July 1, 2017, would not only allow logistics companies to set up just a few and big warehouses region wise, but also allow them to follow the hub-and-spoke model for freight movement from the warehouses to different manufacturing plants and wholesale and retail outlets.
Post GST the demand for warehouse space in India is expected to increase from export/import (EXIM) cargo, agriculture and manufacturing especially, textiles, auto, and auto ancillary. The requirement for scale and cost-efficient solutions may benefit large organized firms more than smaller firms. This is pointing to the outsourcing of warehousing activity by private companies. VRL Logistics has entered into an agreement of sale with Rajglory Infra LLP for the purchase of land and construction of transshipment yard at Surat, Gujarat at an estimated cost of around Rs 83 crore.
VRL provides customized solutions to its customers with third-party logistics and warehousing solutions nationwide. Beside it, Mahindra & Mahindra, Bosch, Maruti, Michelin, Hindustan Petroleum, United India Insurance, National India Insurance, etc. are some brands that are using VRL’s vehicles for branding.
New Silk Route (NSR) sold its 2012 investment in VRL Logistics finally in July 2016. The initial investment of NSR was of Rs.175 crores in the company and was sold for Rs.445 crore generating over 154% return in 4 years’ period. The exit was done in two parts. Majority of the holding was sold via IPO in April 2015 and remaining through block trade in July 2016.
One important observation was that the promoters remained in sidelines with the private equity exit. The shares in the block deal were bought by large institutional investors like mutual funds, insurance companies, and foreign institutional investors. On further deep driving into the recent sharing holding of VRL, it is evident that most of the holdings in the company are hands of investors of long-term nature. Around 0.2% of shareholders of long-term nature holds 88% in the company. The promoter’s sold 2% of their holdings in the company to mutual funds in the last quarter.
Further, as per Reuters latest figure on VRL Logistics institutional holding, 27 institutions hold 23.06% in the company. Two new institutions had new position while eight institutions have increased their position in the company.
Vijay Sankeshwar founded the company in Gadag, North Karnataka with one truck in 1976. At present, it is one of the leading pan India surface logistics and parcel delivery provider. It is the largest fleet owner of commercial vehicles. And it operates 4253 vehicles on the road that includes 419 passenger transport vehicles and 3941 goods transport vehicles. VRL is maintaining a network of 1024 branches and franchisees. And these networks are strategically located at 48 transshipment hubs.
VRL caters the broad range of industries including FMCG, textiles, apparel, furniture, metal, metal products, automotive parts, etc. And, it also provides luxury bus services in Bengaluru, Mumbai, Pune, Ahmedabad, Hyderabad, and Panjim.
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On the weekly chart, VRL Logistics Ltd share price broke a descending channel pattern a few weeks earlier. Since mid of last year primarily it was trading within this falling channel. Now, it is hovering near the upper trend line of that channel.
Currently, it is trading around 350 levels (week ending 27-Oct 2017) after making a recent high of 384.95 levels on National Stock Exchange of India. A good VRL support is in the range of the 300 to 310 levels. The upper part of the channel also falls within this range. The VRL shares got listed on BSE and NSE trading platform on 30 April 2015.
On the upside, VRL resistance is at 394 levels and above it at 440 levels. Once the VRL Logistics share prices test these levels, then a new set of a rally in the stock price may be possible. This may lead prices to make all-time high.
Long-term debt reduction and increasing value-added services to the customers like warehousing and branding solutions is an added advantage to the company. These services are certainly going to helps VRL compete not only peers in the organized sector but also among the unorganized players.
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