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MOSL: VRL LOGISTICS – ANNUAL REPORT UPDATE: On expansion mode aided by bright future ahead

.  VRL LOGISTICS – ANNUAL REPORT UPDATE: On expansion mode aided by bright future ahead

(VRLL IN, Mkt Cap USD0.7b, CMP INR624, TP INR730, 17% Upside, Buy)

Strong position in the less-than-truck-load segment with robust asset base and enviable network

• VRL Logistics Ltd (VRL), with its large asset base of 4,816 trucks, continues to focus on the high-margin less-than-truck-load (LTL) segment. The trucks have a total carrying capacity of 71,056 tonnes.
• Additionally, the company also has good infrastructure setup including several owned premises comprising branches, offices and transshipment hubs.
• The market for organized players is likely to expand gradually as several commodities such as leather goods, betel nut, coconut products that were earlier transported by the unorganized players are now being transported by the organized ones. Reforms in the form of GST and e-way bills along with the impact of Covid-19 have led to the gradual improvement in share of organized logistics players as several small unorganized players moved out of the market.
• VRL is on track to capitalize on the growth opportunity in the LTL segment. It has rolled out a large capex plan to be completed within the next two years. The company is looking to add branches aggressively in areas where it has lesser presence, like eastern India, which would allow it to cater to higher volumes and capitalize on its existing network.

 

Asset ownership focus unlike competitors helps in more stabilized operations and leads to better efficiency

• VRL at present is one of largest fleet owners in India with a load carrying capacity of 71,056 tonnes.
• With asset ownership, VRL is able to derive cost savings from the economies of scale through various tie-ups with fuel suppliers and vehicle manufacturers for supply of spare parts, tyres, etc. This also with ongoing in-house R&D initiatives has enabled VRL to utilize its vehicles for a significantly longer term vis-à-vis the industry and also at materially lesser maintenance costs.

 

Prepares to capitalize on the growth opportunity with a large capex plan of adding 1,600 trucks

• VRL recently announced the purchase of 1,600 customized trucks (with ~25,000t capacity) comprising 1,000 trucks of TATA LPT 2818 make, 200 trucks of TATA LPT 1415 make, 100 trucks of TATA 610 SFC make, 200 trucks of Ashok Leyland 1920 make and 100 trucks of Ashok Leyland 4620 make with a total capex of INR5.6b spread over the next 12-18 months.
• The capex would result in a net capacity addition of ~13,000t (around 20% of existing capacity), and would allow VRL to cater to the expected industry volume growth and reduce its dependence on hired vehicles.
• The order also includes an addition of significant number of Trailer vehicles that would be used to move parcels over routes having higher load volumes to improve service levels

Branch addition in newer areas to help garner more volumes

• The company has identified: a) several locations in eastern India to open new branches and b) certain towns and areas in the vicinity of its existing network that offer potential to garner additional freight volume.
• In FY22, VRL has added 91 branches and is further looking to add branches into select pockets of eastern India and also the northeastern States.
• The branch expansion would lead to addition of many new customers and help service existing customers in the areas covered by the new branches.