EUR 120.00 For Business Accounts Only

MOSL: VRL LOGISTICS (Buy)-Festive demand drives volume growth in 2QFY22

VRL LOGISTICS: Festive demand drives volume growth in 2QFY22

(VRLL IN, Mkt Cap USD0.5b, CMP INR400, TP INR540, 35% Upside, Buy)

 

Healthy volumes and increasing freight rates aid margin

• VRL reported a strong 2QFY22, with topline growth of 45% YoY to ~INR6.4b on the back of a 40% growth in the Goods Transport (GT) segment. Volumes in the GT segment grew over 60% YoY in 1HFY22. The Bus Operations business, which was the most impacted by the lockdowns, saw a sharp recovery, with revenue growing 3x to INR503m.
• EBITDA margin came in at a healthy ~18% in 2QFY22. The strong pick up in volumes allowed VRL to undertake price hikes and more than offset the increase in diesel prices.
• We raise our FY23E/FY24E EPS estimate by 24%/17% to factor in an improved outlook on volume and margin. VRL is looking to increase its branch network, which would aid higher volumes. We maintain our Buy rating with a revised TP of INR540/share (35x FY24E EPS).

 Volumes back to pre-COVID levels; margin improves sharply despite a rise in fuel costs

• The 40% YoY rise in revenue in the GT segment is due to higher (7%/33%) realization/tonnage.
• The QoQ improvement in EBITDA margin was driven by a pickup in volumes and price hikes taken by the company at the end of 1QFY22. Margin improved despite a sharp run-up in diesel prices.
• A strong operating performance resulted in a 60% YoY growth in PAT to INR495m.