VRL Logistics IPO: mop-up to fund expansion

Investors can subscribe to the initial public offer of VRL Logistics, a transportation service provider.

The expected pick-up in the economy, roll-out of GST and growth in the e-commerce segment will benefit the 38-year-old company with a fleet of over 4,000 vehicles and a presence in 28 States and four union territories.

The price band of ₹195-205 discounts VRL’s annualised earnings for the nine months ended December 2014 by 19-20 times on the post-issue equity. This is cheaper than the 12-month trailing earnings multiples for local peers such as Transport Corporation of India and Gati (25 and 70 times) and global peers such as JB Hunt Transport, CH Robinson and Hub Group International (20-25 times).

VRL’s revenue and earnings have averaged an annual growth of 20 per cent and 18 per cent, respectively, between 2009-10 and 2013-14.

Goods transport, which accounts for 75 per cent of its revenue, caters to a wide range of industries such as FMCG, food, textiles, pharmaceutical and metal. Its base of small and medium business clients is well diversified with the top 10 customers accounting for just 6 per cent of its revenue. Besides trucks, VRL also operates car carriers and oil tankers.

The company commands a 10-15 per cent premium on the rates its charges, due to its geographic reach.

Also, it is not locked in on long term rate contracts with its clients and can hence revise prices often. Its operational efficiency is high, thanks to its in-house capability to design vehicle body, perform maintenance and track vehicle usage.

The company plans to purchase 248 new vehicles with the issue proceeds, increasing income from this segment. Revenue per vehicle has increased 50 per cent in the past five years to around ₹39 lakh a year in 2013-14, thanks to higher capacity vehicles and better utilisation. Also, margins will be helped by the newly acquired vehicles reducing the cost of hiring outside vehicle.

Its fleet of 455 passenger buses, operated under the Vijayanand Travels brand, accounts for 20 per cent of revenue. Wind power generation, courier and air charter segments account for 5 per cent of revenue. VRL’s revenue and profit for the nine months ended December 2014 were ₹1,289 crore and ₹72 crore, respectively. Net profit margins averaged 3-7 per cent in the last five years.

The company’s debt as on December 2014 was ₹471 crore and its post-issue debt to equity ratio will be one times, after repayment of ₹28 crore of debt.

Good transport business has operational risks including accidents and goods damage.

Also 59 per cent of VRL’s good transport revenue is from customers paying after goods receipt rather than prior to shipment.

The company has contingent liabilities of ₹22 crore and over 100 cases on motor and billing claims pending.

Diesel costs accounted for 27 per cent of revenue in the nine months ending December 2014, up from 22 per cent in 2010-11. Inability to pass on increase in fuel cost can adversely impact margins, if diesel prices move higher. Also, transport operations require ongoing capital investments for fleet replacement and additions.

The issue is priced at ₹195-205 per share and will be open for subscription from April 15-17. The offer includes fresh issue of nearly 0.6 crore shares along with offer for sale of 1.7 crore shares.

The private equity fund New Silk Route is offloading 17.5 per cent stake in the company through this issue. Of the total issue size of about ₹460 crore, ₹117 crore will be available for the company’s operations and debt repayment.

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