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MOSL: VRL LOGISTICS (Buy)-Volume growth to drive earnings

VRL LOGISTICS: Volume growth to drive earnings

(VRLL IN, Mkt Cap USD0.5b, CMP INR431, TP INR540, 25% Upside, Buy)

 

• We released our Logistics thematic report recently (), wherein we highlighted that a) the Logistics sector is set to move towards formalization and b) there would be strong growth opportunities for some of the established players in this space. With a robust growth outlook, we expect strong upside in the stock from current levels.
• The strong tailwinds for VRL would drive consistent growth in volumes and earnings over the next few years. The company would benefit from a) the uptick in economic activity, b) the general price hikes taken post 1QFY22, and c) easing fuel prices (on account of tax cuts).
• VRL is focusing on the high-margin LTL business (driven by the B2B segment) and expanding its network into newer markets. We expect VRL Logistics to clock a revenue/EBITDA/PAT CAGR of ~19%/19%/45% over FY21-24. We reiterate our Buy rating, with TP of INR540/share (35x FY24E EPS).

 

Festive demand and easing restrictions result in strong volume uptick; momentum likely to sustain

• The company has seen capacity utilization moving towards pre-COVID levels in the last few months. 2Q saw ~35% YoY growth in volumes, driven by the buildup in festive season inventory and easing of transport restrictions.
• The volume momentum is expected to continue with the pickup in economic activity and normalization of transportation activity. Over the medium-to-long term, we expect growth to be driven by an uptick in the overall Logistics sector (driven by economic growth) and increasing formalization, leading to market share gains in organized players such as VRL.