2064611577PC - VRL Logistics Initiating - Oct-2015 20151012163712

VRL Logistics
Hitting the growth highway
INITIATING COVERAGE
INSTITUTIONALEQUITYRESEARCH
VRLLogisticsLtd(VRLLIN)
Hittingthegrowthhighway

12October2015
INDIA|LOGISTICS|InitiatingCoverage
VRL has emerged as one of Indias leading panIndia logistics and parceldelivery service BUY
providerswithstrongbrandequitybackedbyover38yearsofoperations.Thepromoters CMPRs374
have demonstrated a consistent track record of growth and operational efficiency.
TARGETRS442(+18%)
Buoyancy in domestic trade and policy initiatives like GST and the new transport bill

wouldemergeaskeygrowthdrivers.Accordingly,weexpectareratinginthecompanys
COMPANYDATA
valuationwith(1)predictableandstrongoperatingmargin,(2)scaleupinoperatingcash O/SSHARES(MN): 91
flows,(3)healthyreturnratios,and(4)highearningvisibility(CAGRof33%overFY1517). MARKETCAP(RSBN): 35
WeinitiatecoveragewithaBUYrecommendation. MARKETCAP(USDBN): 0.5
52WKHI/LO(RS): 478/261
LIQUIDITY3M(USDMN): 3.4
Leaderinroadtransport
PARVALUE(RS): 10
VRLhasgarneredaleadingplayerstatusinsurfacelogisticsandparcelservicesinIndiaover
thepastthreedecades.Itcurrentlyoperatesafleetof4,074vehicles(3,701goodscarriers SHAREHOLDINGPATTERN,%
and373passengerbuses)with624branches.Itsrobusttransportationnetworkin28states PROMOTERS: 69.6
and4unionterritoriesprovidesgeneralparcelandpriorityparceldeliveriesandcourierand FII/NRI: 15.8
fulltruckload (FTL) services. Its hubandspoke model enabled it to facilitate lastmile FI/MF: 8.7
NONPROMOTERCORP.HOLDINGS: 6.1
connectivity to remote areas in India. Goods transportation is 77% of its revenue while PUBLIC&OTHERS: 5.2
revenuefrompassengerbusesis~20%.RevenueCAGRoverFY1015was19%.
PRICEPERFORMANCE,%
Diversifiedcustomerbaseandrevenuemix 1MTH 3MTH 1YR
Thecompanyhasadiversemixofendmarketsacrossseveralindustries/sectorsnosingle ABS 4.3 13.0 na
RELTOBSE 12.9 17.1 na
customeraccountedfor>1%ofitsrevenuesinFY15.Thisrevenuemixhashelpedittokeep
itsbaddebtstoaminimum(notmorethan~Rs1mninayear).Therevenuefrompaidand PRICEVS.SENSEX
topaycustomers(excludingFTL)isaround10%and59%respectivelytheseareprimarily
140
small and medium enterprises, distributors, and traders. Thus, the company has a speedy
130
cashconversioncycleensuringlowerworkingcapitalrequirements. 120
110
Predictablehealthymarginsandconsistentoperatingperformance 100
VRLhaskeptcontrolonmajorcostssuchasdiesel(tieupswithoilcompaniesandrecently 90
introductionofbiodiesel)andrepairandmaintenance(inhousemaintenancefacilitiesand 80
tieups with suppliers). It operates with its own fleet to (1) reduce dependence on hired 70
vehicles, (2) retain control on costs, value chain and service quality, and (3) establish Apr15 May15 Jun15 Jul15
reputationforreliableandtimelydelivery.Theseadvantageshaveenabledthecompanyto
VRLLogistics BSESensex
garnersomepricingpowerandreportahealthymarginof16.3%inFY15.Decreaseindiesel
pricesandoperatingcostswouldbefavourableforthecompanyanditcouldearnmargins Source:PhillipCapitalIndiaResearch

of16.8%/17.4%inFY16/17.
KEYFINANCIALS
Rsmn FY15 FY16E FY17E

GSTandtransportbillwillbegrowthcatalysts NetSales 16,712 18,632 21,013
The proposed implementation of GST is likely to remove current multiple taxation and EBIDTA 2,729 3,134 3,653
benefit the logistics sector, particularly interstate movement of goods. The transport bill NetProfit 876 1,266 1,613
proposesaunifiedvehicleregistrationsystemandasimplifiedsystemoftransportpermits, EPS,Rs 10.7 13.9 17.7
which will significantly improve operating efficiencies and reduce operational cost for PER,x 37.4 26.9 21.2
passengertransportationbusiness. EV/EBIDTA,x 13.3 12.0 10.1
P/BV,x 9.6 7.7 6.1
ROE,% 25.6 28.4 28.6
Outlookandvaluation
Debt/Equity(%) 1.3 0.9 0.6
At its CMP of Rs. 374, the company trades at a FY16/17 P/E of 26.9x/21.2x.We expect
Source:PhillipCapitalIndiaResearchEst.
revenueCAGRof12%toRs21bnoverFY1517withfleetadditionatCAGRof6%.Revenue
growth would primarily come from goods transport business (13%CAGR) while bus DeepakAgarwal(+912266679944)
operations should see 9% CAGR. Higher RoCE, RoE, and FCF of Rs 1.5/1.7bn in FY16/17 dagarwal@phillipcapital.in
should lead to a rerating. VRLs growth prospects look promising and leave scope for
VikramSuryavanshi(+912266679951)
upside.WeassignaP/Eof25xtoourFY17earningstoarriveatourpricetargetofRs442. vsuryavanshi@phillipcapital.in

Page|1|PHILLIPCAPITALINDIARESEARCH

VRLLOGISTICSLTD INITIATINGCOVERAGE
Dominantpositioninroadlogistics/focusonLTL
VRLisaleadingplayerinsurfacelogisticsandparcelservicesinIndiawithafleetof
~4,074 vehicles including 3,701 goods carriers and 373 passenger buses. Goods LTL is transportation of relatively
transportation (GT) is its primary business and contributes ~77% to revenues while small freight. It covers general
revenue from passenger buses is ~20%. GT segment serves various industries and parcelandpriorityparcel
sectors (FMCG, textiles, furniture, pharmaceuticals, rubber, plastics, metals, and
automotive parts). This large and diverse base of customers has enabled VRL to
ensure that the company is not dependent on any particular set of customers for
revenues.Nosinglecustomercontributedmorethan1%ofitsrevenuefromgoods
transport.
We expect goods transport business to be a game changer for the company with
focus on lessthantruckload (LTL) supported by an efficient hubandspoke LTL is the main contributor to the
arrangement.Thegeneralparcelandpriorityparceldeliveries,whichmainlyaccount companys revenues with better
for LTL, contribute ~66% of the total revenue while courier and fulltruckload (FTL) marginsandflexibilityinpricing
servicesaccountfor~8.8%ofFY15revenue.AsignificantlyhigherproportionofLTL
helpsthecompanytogetbettermarginsandflexibilityinpricing.InLTL,theratesare
charged differently for general and parcel deliveries based on weight, volume, and
distance;forFTL,ratesaremainlyfixedonaperkilometrebasis.
RevenuedriversofgoodstransportationforVRL(FY15)
GoodsTransportation
Rs.12.9bn
Lessthantruck Fulltruckload
CarCarrier LiquidTransport Courier
load(LTL) (FTL)
Rs.0.32bn Rs.0.02bn Rs.0.06bn
Rs.11bn Rs.1.4bn
GeneralParcel
Rs.9.9bn
PriorityParcel
Rs.1.1bn

Source:Company,PhillipCapitalIndiaResearch
Diversified customer base and revenue source

VRL operates through a hubandspoke model enabling transport of various parcel
sizes and countrywide lastmile connectivity. It has 48 transportation hubs (seven
owned).AttheendofFY15,itsoperatinginfrastructurecomprisedof652branches
Inthetopayoption,customersdo
(20owned)and325agenciesin977locations.Thesehelpthecompanytoaggregate
not pay charges at the time of
smallparcelsandmaximizecapacityutilizationofvehicles.
bookingthepersontowhomthe
goods are to be delivered or the
Thecompanyoperatesacrossseveralsectors,whichofferadiversemixofcustomers. consignee has to pay freight upon
Nosinglecustomercontributedmorethan1%ofrevenuefromgoodstransportation collectionofthegood.
in FY15. The revenue from paid and to pay customers (excluding FTL) is around
10% and 59% respectively these are primarily small and medium enterprises,
distributors,andtraders.ItsrevenuemixhashelpedittokeepitsbaddebtsbelowRs
1mninayear.
GST: The proposed implementation of Goods and Service Tax (GST) is expected to
removethecurrentmultipletaxationandbenefitthelogisticssector.Thecompanyis
wellpoisedtoaccelerateitsgrowth(asVRLoperatesthroughhubandspokemodel)
oncetheopportunitiespresentedbyGSTrollout.

Topaycustomersshareingoodstransportbusiness ShareofPaid&TopaycustomersinFY15
60% Others,
13.70%
59%
58%
OnGoing
Accounts,
57%
17.30%
56% Topay
customers,
57.40%
55%
54% Paid
Customer,
FY12 FY13 FY14 FY15
11.60%

The company plans to increase its portion of owned hubs along with expanding
capacities through considerable addition of logistics and storage capacities. VRL is
also accumulating a significant number of branches in the northern, central, and
easternregionsofIndia.
PresenceinIndiavastnetwork
State Agencies Branches TranshipmentHubs

Karnataka 75 155 10
TamilNadu 34 106 6
AP 45 84 8
Maharashtra 59 71 6
Gujarat 19 29 3
Telengana 21 28 2
Kerala 15 25 2
UP 15 17 2
Delhi 11 19 0
MP 0 23 1
Rajasthan 8 14 0
Punjab 6 13 1
Haryana 7 7 3
Source:Company,PhillipCapitalIndiaResearch WestBengal 7 9 1

Strongoperatingmatrixsupporthealthymargins
VRLoperateswithitsownfleetto(1)reducedependenceonhiredvehicles,(2)retain
control on value chain and service standards, and (3) establish a reputation for
reliable and timely delivery. It has dedicated inhouse maintenance facilities, Costssaving measures include in
accessibility to spare parts and fuel, and inhouse software technology capabilities. house maintenance facilities, in
Thesefacilitiesreduceexpensiveonroadrepairsandoutofroutetripsandminimize housesoftware,increasedusageof
downtime due to breakdowns. It also has a reengineering department and a tyre biodiesel,tyrerepairunits,andtie
upswithtyreandfuelcompanies
repair unit at Hubballi (in North Karnataka) to increase the useful life of tyres and
engines.
AshokLeyland&VECommercial(Volvo)havebuilttheirownsparepartsyardinVRLs
premisesthisallowsVRLtoobtainextrapartsatprocessingplantratesandsaves
moneyonconveyingexpenses.Fortyres,ithasatieupwithMichelinIndiaTiresand
CEAT at competitive rates. VRL's inhouse innovation group has created software
applications(ERP)totracktimelyserviceandsparepartsubstitutions,whichhelpsin
expandingtheproficiencyandlifeofitstrucks.
VRL has modified some vehicles with lighter and longer bodies to allow higher
payloads without abusing acceptable payload limits. This helps VRL to expand its
capacityofthetruckandhelpinbetterutilizationofthevehicle.
Operatingmatrix(expensesas%ofrevenue)
EmployeeCost OtherExp. LorryHire
Dieselcost OtherOperationgExp. OPM(rhs)
100% 30%
25%
80% InFY13andFY14,VRLhadlower
20% 19% 19% 18%
17% 17% 17% 17% 20% marginsduetotheTelanganaissue
16%
60% 15% 14%
15%
40%
26% 26% 25% 10%
20%
5%
0% 0%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Source:Company,PhillipCapitalIndiaResearchEstimates
Fuel (diesel) is a major componentof operating expenses accountingfor 2528% of

sales and has a direct impact on its operating margins. The company operates two
own consumer diesel pumps located at Hubballi and Chitradurga in Karnataka to
ensurequalityfuelsupplyatreducedcost.Itsownpumpscontributed25%oftotal
procurementoffuelwhileIOCcontributed54%,HP19%,andBP3%(FY15).VRLhasa
tie up with nearly 100 designated fuel pump retailers across the country for re
fuelling during transits and for availing fuel at a discounted price. The payment by
fleetcardsenablesdiscountsandextendedcreditperiods.Companyhasstartedusing
biodiesel(BD),whichcurrentlycontributes12%ofitstotalquantityBDis~Rs5per
litre (~10%) cheaper than normal diesel. Currently, the company is buying it from VRLexpectsbiodieseltoconstitute
Kakinada, Andhra Pradesh. Biodiesel is easy to store and the company expects its 20%ofitstotaldieselrequirements
contributiontoincreaseupto20%,whichwillhelpinloweringitsdieselcosts. fromabout12%currently
leadingtocostsavings
Thecompanyhasatotalemployeestrengthof~16,000employeeswith7,000drivers
ontheirpayroll.Thedriversperformanceisassessedintermsofsafety,timetaken
fortrips,distancescovered,fuelutilizationandhelpfulexistenceoftires.Weexpect
theseinternalmethodswillhelpthecompanytoreporthealthymargins.

Dieselcostas%ofrevenue Averagedieselprices
Dieselcost(Rsmn) %ofSales 70 AvgdieselpriceRs/litre
7,000 27% 27% 30%
26% 26% 26% 25% 60
6,000 24%
21% 22% 25%
5,892 50
5,000 5,386 20% 40
4,874
4,000
15% 30
3,000
10% 20
2,000
10
1,000 5%
0
0%
Sep02
Sep03
Sep04
Sep05
Sep06
Sep07
Sep08
Sep09
Sep10
Sep11
Sep12
Sep13
Sep14
Sep15

Source:Company,IOC,PhillipCapitalIndiaResearchEstimates
Vehicleadditiontosupportgrowth
GoodstransportvehiclesCAGRwas8%overFY1015.Thissegmentoperatesthrough
3,701 owned vehicles, out of which 2,461 or 66% were heavy commercial vehicles
VRLtoadd248AshokLeylandvehicles(30
(1QFY16).WeexpectVRLtoadd250vehiclesinFY16and290inFY17about7% AL1212and218AL3723)usingIPO
growth in both years. Its fleet includes 1,298 (35%) vehicles that are less than five money
yearsoldandtheaverageageofitsgoodsfleetiseightyears.Vehicleadditionwill
helpthecompanytocovermoregeographiesandexpanditsbusiness.
Vehicleadditioningoodstransport(no)
5,000 AL121230Vehicle@Rs1.6mnpervehicle
4,484
4,189
3,899
4,000 3,649
3,352
3,079 3,088
3,000 2,655
2,519
2,000
1,000
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Source:Company,PhillipCapitalIndiaResearchEstimates AL37233723218Vehicle@Rs2.86mn
pervehicle
GoodsTransportvehicles
Year Small Light Heavy CarCarrier Tanker Cranes Total
Vehicle Commercial Commercial Vehicles
Vehicles Vehicles Owned
FY10 180 842 1,480 7 10 2,519
FY11 171 892 1,575 7 10 2,655
FY12 139 883 1,916 102 27 12 3,079
FY13 122 883 1,941 102 27 13 3,088
FY14 122 882 2,210 102 23 13 3,352
FY15 120 975 2,423 102 16 13 3,649
1QFY16 120 988 2,461 102 17 13 3,701

Keybenefitsofownedvehicles:
Considerablyreducehiringandoperationalcosts
Reducedependenceonthirdpartyhiredvehicles
Superiorcontrolovertimebounddelivery
Improvedservicequalityandensurereliablequalityservices
Improvedutilisationandproposedtransportationbillkeytriggerforbustransport
VRL is a private operator of passenger buses, focused on highdensity urban
commutermarkets;itoperateswith373ownedbuses.Itspassengertransportation
networkcoverskeycitiesacrosssevenstates.VRLhaspioneeredthecountryslargest
commercial bus route from Bangalore to Jodhpur, nearly 2000 km, which is one of
the longest routes operated by any passenger service provider in the country. The
company also has a business of luxury bus services in states such as Karnataka,
Maharashtra,AndhraPradesh,Telangana,Gujarat,andRajasthan.
VRL foresees significant improvement in operating efficiencies and a decline in

operationalcostswiththeproposedTransportBill.Thisbillproposesaunifiedvehicle
registrationsystemandasimplifiedsystemofvehicularandtransportpermits,which
willhelptoeasevariousoperationaldifficultiesrelatingtointerstatetransportation
ofpassengers.Additionofnewvehiclesinthissegmentdependsonthisbill.
Majorbusroutesandfare(Rs)
Route KM Duration Fare Route KM Duration Fare
DavanageretoBangalore 328 5hr 400/450 PunetoNagpur 860 14hr 800/1400
BellarytoBangalore 399 6hr 460/540 PunetoBelgaum 412 6hr 550/1800
ChennaitoBangalore 412 6hr 568/800 HyderabadtoGoa 847 14hr 950/1000
BangaloretoDavanagere 375 6hr 310/1800 BangaloretoHyderabad 530 8hr 850/900
GoatoPune 653 10hr 600/650 PunetoBangalore 836 13hr 100/1400
PunetoGoa 623 10hr 700 GoatoHyderabad 880 14hr 850/900
NagpurtoPune 849 14hr 800/1200 HyderabadtoBangalore 545 9hr 850/900
HublitoHyderabad 480 8hr 900/1200 MumbaitoBelgaum 647 10hr 550/1800
BangaloretoGoa 753 12hr 500/800 MangaloretoBangalore 461 7hr 550/700
ShirditoHyderabad 754 12hr 710/854 VisakhapatnamtoBangalore 1044 17hr 1100
BangaloretoBellary 395 6hr 460/650 BangaloretoVisakhapatnam 1078 17hr 1100
AhmedabadtoPune 804 13hr 700/1600 HyderabadtoShirdi 779 12hr 700/850
HyderabadtoHubli 495 8hr 900/950 MumbaitoGoa 860 14hr 600
GoatoMumbai 771 12hr 600/650 HyderabadtoMumbai 837 13hr 800/850
BangaloretoPune 835 13hr 900/1500 HyderabadtoMangalore 892 14hr 1200
GoatoBangalore 764 12hr 500/700 BangaloretoMangalore 447 7hr 550/750
BangaloretoChennai 400 6hr 568/800 JodhpurtoBangalore 10hr 2500
Source:www.redbus.in(Data:August2015)
VRL provides booking services through ecommerce portals such as www.vrlbus.in,

www.makemytrip.com, and www.redbus.co.into cater to more clients. It has 81
branch offices (of which 74 are leased and seven owned), 739 agencies, and 416
prepaid agencies. VRL has increased direct marketing efforts to enhance margins OverFY1617,weexpectbussegment
revenueCAGRtobe9%totouchRs3.95bn
through optimal route planning and maximizing occupancy levels. It had 79.6% inFY17,19%oftotalrevenues.
occupancylevelsinFY15andweexpectthistoimproveto80.1%/80.6%inFY16/17.
Average realizations per passenger improved 20% to Rs964 inFY15 and we expect
thesetoimproveby3.0%/3.5%inFY16/17.BussegmentrevenueCAGRwas29%over
FY1015andweexpectittobe9%toRs3.95bnoverFY1617duetocontrolledfleet
addition.

Fleetadditioninpassengersegment Busdivisionpassengerrealizationandoccupancyrate
600 PassengerRealisation(Rs.) Occupancyrate(%)
Bus FleetNo.
1,200 90%
500 460 477
423 440
410 1,000
390 81% 81%
400 375 80% 80%
800 80%
296
300
600
196
200 69%
400 70%
100
1,028
1,069
200
806
964
993
0
60%
FY14 FY15 FY16e FY17e FY18e

ImprovingbalancesheettohelpRoE/RoCE
VRLhasutilisedpartofitsIPOproceedsandstrongcashflowstoreducedleverage.
DebthasreducedtoRs4.51bninFY15fromRs6.1bninFY12netdebt/equityto
1.2x from3.9x. This, along with improvement in operating performance has helped
the company to generate attractive return on assets. Operating margins at 16.8
17.4% and asset turnover of 2x should help the company to report RoCEs of
~24.7/27.4%inFY16/17.AnnualcashflowofRs1.8bnwillhelpreducedebtwesee
netdebt/equityfallingto0.8x/0.5xinFY16/17.
Netdebt/equitytofallto0.5xinFY17
TotalDebt(Rsmn) NetDebt:Equity(x)
7,000 4.5
4.0
6,000
3.9 3.5
5,000
5,143
3.0
5,093
3.3
6,120
3.2
4,519
4,505
4,000 2.5
4,019
3,783
2.0
3,519
3,000
3,219
1.5
2,000 1.7 1.6
1.0
1,000 1.2 0.5
0.2 0.5
0.8


DuPontanalysis
DuPontanalysis(pastandfuture)pointsatsometriggersforarerating.FY1012the
company had ROEs of more than 25%, mainly due to higher debt (4.7x leverage
multiplier),whichhelpedthecompanytoboostitsrevenuetoRs11.3bninFY12from
Rs6.5bninFY09(20%CAGR).InFY15,VRLsRoEhascrossed25%levels,butthistime
ithasbeenpulledupbyhigherassetturnoverof2xandcomparativelylowerleverage
multiplierof2.5x.

HealthyreturnratiosRoE(%)andRoCE(%)
60 ROCE ROE
50 HighLeverageMultiplier
50.2
40
38.4 28.6 31.9
28.4
30 25.6
28.8
26.3 18.7
27.4
20 15.8 24.7
21.5
16.9 17.6
10 14.7 14.0 14.4
0

We believe the company can capitalise on the expected steady improvement in

demand in the coming years and a shift towards organised players. For VRL, we
believe that opportunities exist in the form of the new vehicle additions and
expansionofitsnetworkinthenorthernandeasternpartsofIndia.AsVRLalready
operates at more than 95% capacity utilisation, it will not take much time to
capitaliseitsnewfleet.Therefore,weexpectVRLtohaveanassetturnoverof2.1xin
FY17andlowerleveragemultiplierof1.8xinFY17thiswillhelpthecompanyto
reportahealthyRoEof29%.
DuPontanalysis
DuPontanalysis Mar09 Mar10 Mar11 Mar12 Mar13 Mar14 Mar15 Mar16 Mar17 Mar18
TaxBurden(x) 0.6 0.7 0.7 1.2 0.7 0.7 0.7 0.7 0.7 0.7
InterestBurden(x) 0.09 0.46 0.60 0.49 0.52 0.59 0.72 0.79 0.85 0.89
EBITMargin(%) 10.0 13.3 13.4 11.3 9.3 8.7 11.5 12.4 13.1 14.4
AssetTurnover(x) 1.1 1.3 1.4 1.3 1.5 1.7 1.9 2.0 2.1 2.1
LeverageMultiplier(x) 5.6 5.0 4.7 5.6 3.0 2.9 2.5 2.1 1.8 1.5
RoE(%) 3.1 26.3 38.4 50.2 15.8 18.7 25.6 28.4 28.6 28.8

Financials
VRLs FY1015 revenue CAGR was 19% to Rs 16.7bn. Its total fleet grew to 4,084
vehiclesinFY15from2,730inFY10an8%CAGR.WeexpectrevenueCAGRof12%
toRs21bnoverFY1517withfleetadditionatCAGRof6%.Revenuegrowthwould
primarily come from goods transport business (13%CAGR) while bus operations
shouldsee9%CAGR.
VRLrevenueCARGof13%overFY1518
25
Revenue(Rsbn)
23.8
20
21.0
18.6
15 16.7
14.9
13.3
10
11.3
8.9
7.1


Ingoodstransport,weexpectthecompanytosee13%revenuegrowthtoRs14.5bn
inFY16and14%growthtoRs16.5bninFY17,primaryonvehicleadditions(250/290
inFY16/17),whichwillhelpVRLtoconsolidateitsfootholdoutsidesouthernIndia.
GoodsTransportrevenueCAGRof13%overFY1518 BusservicesrevenueCAGRof11%overFY1518
20 GoodsTransport Revenue(Rsbn) BusRevenue(Rsbn)
5.0
18
19 4.5
16
4.5
17 4.0
14
4.0
15 3.5
3.6
12 13 3.0
3.3
3.1
10 11 2.5
2.8
8 10
9 2.0
2.2
6 7 1.5
4 6 1.0
1.3
0.9
2 0.5
0.0
FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Initsbusoperation,weestimaterevenueofRs3.6bn(+8.4%)inFY16andRs3.9bn
(+10.2%) in FY17. This growth should come from higher occupancy rates and
passenger realizations, as the company starts focusing on higher value and higher
occupancyroutes.

VRL:EBITDAandOPMtrend VRL:PATCAGRof32%overFY1518
EBITDA(Rsmn) PAT(Rsmn)
5,000 25% 2500
19% 19%
4,000 18% 20% 2000
17% 17% 17%
16%
15%
14%
3,000 15% 1500
2,000 10% 1000
1,000 5% 500
1,378
1,659
1,919
1,952
2,066
2,729
3,134
3,653
4,387
1,266
1,613
2,109
288
517
767
457
572
913
0% 0
FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

An increase in scale of operations coupled with tight controls on costs has led to
healthy operating margins. We expect margins of 16.8% with EBITDA of Rs 3.1bn
(+17%)inFY16.Strongmarginsandlowerinterestwillleadtoahealthynetprofitof
Rs1.3bn(+39%).
InFY17,weexpectVRLsrevenuesatRs21bnandEBITDAofRs3.6bnwithoperating
marginof17.4%.Weexpectprofitgrowthof27%toRs1.6bn.
The net working capital is ~10% sales and it can meet additional working capital
requirementsinternally.Weexpectfreecashflowof~Rs1.5bninFY16andRs1.7bn
in FY17. RoCE should settle above 27% from FY17 while RoE would be +28%. We
believethatGSTandtransportbillwillprovidebigopportunitiestoorganizedplayers,
particularlyVRL.
VRLFreecashandoperatingcashflow
3,500 CFO(Rsmn) FCF(Rsmn)
3,000
2,500
2,000
1,500
1,000
500

(500)
(1,000)


Outlookandvaluation
VRLhassuccessfullynegotiatedatrickybusinessareabydevelopinganeffectivehub
andspoke model, which is helping the company in expanding its geographical base
andsuccessfullymanagingworkingcapital.WeareconvincedthatVRLwillcontinue
to effectively monetise its wide network base in south India while increasing it in
northern India. This would enable it to successfully tap the existing buoyancy in
addressablemarkets. Higher RoCE, RoE, and FCF of Rs
1.5/1.7bninFY16/17shouldleadto
Strong operating matrix, lower diesel prices (along with use of biodiesel) and wide arerating
customerbasewillcontinuetohelpthecompanyreportstrongoperatingmargins.In
fact,webelieveprofitabilitycouldimproveinFY16/17.
AtitsCMPofRs.374,thecompanytradesatFY16/17PEsof26.9x/21.2x.Weassigna
VRL has stronger operating
P/Eof25xtoourFY17earningstoarriveatourpricetargetofRs442,whichtakes
margins, balance sheet, and cash
intoaccountVRLsstrongtrackrecord,goodpromoterpedigree,andconcentration flows vs. other road freight
on operational efficiencies (expanding size and enhancing macro environment for operators
roadfreight transport with GST and the new transport bill coming into play). We
consider VRLs growth prospects look promising and leave scope for an upside. We
initiatecoveragewithaBUYrecommendation.
1yrforwardP/Eband P/BVBand
500 600
450 25x
500 8x
400 23x
21x 7x
350 400
19x
6x
300
300 5x
250
200 200
Apr15 May15 Jun15 Jul15 Aug15 Sep15 Apr15 May15 Jun15 Jul15 Aug15 Sep15

Source:Bloomberg,PhillipCapitalIndiaResearchEstimates

VRLhastwolistedcompetitors(TCI,GATI),whichoperateataveragemarginsof8%,
average ROEs of 11%, and trade at average PEs of 24x on FY17 earnings. VRLs
numbersaresuperiortoitspeersonallparametersitoperatesatahighmarginof
17%,ROEof28%,withalowerPEof21xonFY17earnings.Weexpectareratingin
thecompanysvaluationgivenitssuperiorearningsprofileandreturnratios.
Valuationtable
CMP MCap __Rev(Rsmn)__ ___OPM(%)___ _____EPS_____ ____ROE%____ ______PE______ ______PB_____
FY16e FY17e FY16e FY17e FY16e FY17e FY16e FY17e FY16e FY17e FY16e FY17e
GATI** 160 13,909 19,631 22,857 7.7% 7.8% 5 6 8.3 9.2 29.6 25.0 2.4 2.2
TransportCorp.ofIndia** 296 21,708 26,564 29,365 8.5% 8.7% 11 13 12.6 12.1 25.9 23.4 3.3 2.8
VRL* 374 34,125 18,632 21,013 16.8% 17.4% 14 18 28.4 28.6 26.9 21.2 7.7 6.1
Source:Company,**Bloomberg,*PhillipCapitalIndiaResearchEstimates,
VRLhigherearninggrowthwithLowerMultiple
35%
VRL
30%
PAT CAGRFY15FY17e
25%
20%
TCI
15%
Gati
10%
5%
0%
21 21 22 22 23 23 24 24 25 25 26
PE FY17e

Source:Company,Bloomberg,PhillipCapitalIndiaResearchEstimates
KeyRisks
Riseinoperatingcosts
Fuelcosts,tollcharges,driverssalariesandrentrepresentthemostsignificant
operatingcosts.Anyincreaseinthesecostsorthecompanysinabilitytopasson
ariseincosttocustomerscandryupoperatingmargins.
Highlycompetitiveindustry
VRL can come underpressure with local players strengthening their operations
andtheentryofnewglobalplayers,asitoperatesinanunorganizedandhighly
competitiveindustry.
Disruptionsinroadtransportation
Events such as political unrest, bad weather conditions, regional disturbances,
andcalamitiescanaffectthecompanysfinancials.

IndustryOutlook
In recent years, accessibility, doortodoor service, and reliability have earned road
transportationahighershareofbothpassengerandfreighttrafficvs.othertransport
modes. As a result, road transportation has emerged as the dominant segment in
Indias transportation sector. Both freight and passenger movements by road are
expectedtoexpandrapidlyinthecomingyears.
Roadsremainthepreferredmodefornonbulktransportation
Road Rail Pipeline Coastal
5% 3% 2.30%
100%
5% 6% 6%
80% 26.60%
32.2% 27%
60%
40%
63% 65.10%
58%
20%
0%
200809 201314 201819E

Road freight traffic will grow more swiftly backed with sturdy growth in nonbulk
transport through roads and railways capacity constraints. Freight transport will
showrobustgrowthduetosubstantialinvestmentinthenationalhighwaynetwork
(which will facilitate speedy delivery) and rising volumes of exports and imports.
While road freighttraffic growth should remain moderate in the short term, we
expectittogrowat89%CAGRtoabout2,200BTKMin201819(fromaround1,500
BTKMin201314),drivenbyarevivalinfreightdemand.
Nonbulkfreight:Majorinroadtransport
NonBulk Bulk
100%
22% 21% 19%
28%
80%
60%
40% 78% 79% 81%

73%
20%
0%
200809 201314 201415 201819E

Duringthepostreformperiod(199293to200405)volumeoffreightcarriedbyroad
wassteadyatanannualaverageof6.5%vs.growthof4%inrailfreight.InIndia,in
the last decade, the share of bulk freight in total traffic through roads has risen to
about63%in201314fromjustabout9%.

Freightandpassengermovement
_________Goods(%)_________ _______Passengers(%)_______
Road Railway Road Railway
200506 59.9 40.1 87.4 12.6
200607 61.4 38.6 86.7 13.3
200708 62.0 38.0 86.3 13.7
200809 62.5 37.5 86.1 13.9
200910 62.8 37.2 86.0 14.0
201011 64.3 35.7 85.9 14.1
201112 64.5 35.5 85.9 14.1
Note:Dataafteryear201112isnotavailable
Source:IndianRailways,CRISILResearch
CompanyOverview
VRLisasurfacelogisticsandparceldeliveryservicecompanywithoneofthelargest
fleet of commercial vehicles in the private sector. It provides lastmile connectivity
acrossIndiathroughafleetof3701ownedgoodstransportvehiclesasofJune2015.
VRLworksthroughahubandspokemodel.
Its operational infrastructure for goods transportation (as of December 31, 2014)
comprised:
652 branches (632 leased, 20 owned) and 325 agencies across India in 977
locations.
48(sevenowned)transshipmenthubs.
71newbranchesaddedinFY15.
VRLrevenuebreakup
VRL
FY15RevenueRs16.7bn
GoodsTransportation PassengerTransportation WindPowerGeneration AirCharteroperations

RevenueRs12.9bn RevenueRs3.3bn RevenueRs0.2bn RevenueRs0.1bn

VRLscentralisedinformationtechnologynetworkconnectsallitsbranches,agencies,
transshipmenthubsandotherofficesenablingseamlessrealtimemonitoringofits
operationsandconsignmentbookingsanddeliverystatus.Itscentralisedaccounting
systemsalsoenableittoimplementstringentfinancialcontrols.
ItprovidesluxurybusservicesacrossKarnataka,Maharashtra,Goa,AndhraPradesh,
Telengana, Tamil Nadu, Gujarat, and Rajasthan. Its bus operations are primarily
focusedontier1cities,butitalsoconnectstier2andtier3cities.Thewiderangeof
passengerbusesinitsfleetenablesVRLtoservevariedtransportationrequirements
ofcustomersatdifferentpricepoints.
It also operates car carrier vehicles for transportation of cars, vehicles for liquid
transportation, as well as a courier service business across Karnataka. VRL also has
minorbusinessinterestsinwindpowerandaircharter.

Otherbusinesssegments
Windpowergenerationbusiness
Started in 2006 in Karnataka by setting up a wind farm of 42.5 MW(34 wind
turbinegeneratorswithindividualcapacityof1.25MW).
FY15 revenue from sale of power was Rs 161mn and from certified emission
reductionunits(CERs)wasRs61mn.

Aircharterbusiness
Startedin2008forindividualandcorporateclients.
VRLpurchasedanewPremier1AaircraftfromHawkerBeechcraftandasecond
handaircraftfromForceMotors.
ThedivisionsFY15revenueswereRs117mn.
VRLcontinuouslyaddingvehiclestotheportfolio
YEAR No.ofVehicle Turnover(Rsmn) YEAR No.ofVehicle Turnover(Rsmn)
198384 8 2.8 199900 945 933.7
198485 11 4.0 200001 1,022 1,207.3
198586 15 6.8 200102 1,121 1,465.2
198687 24 14.0 200203 1,202 1,682.6
198788 45 19.9 200304 1,255 2,041.9
198889 81 29.0 200405 1,683 2,773.9
198990 117 40.5 200506 1,891 3,569.5
199091 147 70.9 200607 2,426 4,429.5
199192 215 106.3 200708 2,697 5,469.5
199293 248 137.5 200809 2,668 6,506.6
199394 292 176.3 200910 2,733 7,162.5
199495 398 238.6 201011 2,978 8,929.2
199596 525 310.5 201112 3,529 11,352.8
199697 596 418.9 201213 3,591 13,353.2
199798 621 507.8 201314 3,877 15,037.8
199899 792 645.9 201415 4,087 16,786.6
Historytimeline
ListingonNSEandBSEstockexchanges
ListedinLimca BookofRecords2013asthesinglelargestfleetownerofcommercialvehiclesintheprivatesectorinIndia
2015
InvestmentbyNSR;TurnovercrossesINR10bn
Forayintocarcarryingandliquidtransportation 2013
2012
NamechangedtoVRLLogisticsLimited;ObtainedISO9001:2000certification
2011
1996
1994 2006
Commencementofpassengertransportationbusiness
1992
Becameadeemedpubliclimitedcompany
1983
CommencementofcourierservicebusinessinKarnataka
1976
IncorporatedasVijayanand Roadlines PrivateLimited
Dr.VijaySankeshwar startedgoodstransportationbusinessthroughaproprietaryfirm

Financials

IncomeStatement CashFlow
Y/EMar,Rsmn FY14 FY15 FY16e FY17e Y/EMar,Rsmn FY14 FY15 FY16e FY17e
Netsales 14,814 16,562 18,475 20,848 Pretaxprofit 768 1,379 1,835 2,338
Growth,% 13% 12% 12% 13% Depreciation 866 877 925 1,000
OtherOperatingIncome 124 150 157 165 Chginworkingcapital 4 216 99 120
Totalincome 14,938 16,712 18,632 21,013 Totaltaxpaid 149 287 569 725
Operatingexpenses 10,912 11,794 13,037 14,566 Otheroperatingactivities 544 564 374 315
Employeeexpenses 1,745 1,980 2,227 2,499 Cashflowfromoperatingactivities 2,033 2,317 2,466 2,808
OtherOperatingexpenses 216 210 234 294 Capitalexpenditure 903 491 929 1,091
EBITDA(Core) 2,066 2,729 3,134 3,653 Otherinvestingactivities 7 0 100 100
Growth,% 5.8% 32.1% 14.9% 16.6% Cashflowfrominvestingactivities 911 491 829 991
Margin,% 13.8% 16.3% 16.8% 17.4% Freecashflow 1,122 1,827 1,637 1,817
Depreciation 866 877 925 1,000 Equityraised/(repaid) 0 0 57 0
EBIT 1,200 1,852 2,209 2,653 Debtraised/(repaid) 47 621 500 500
Growth,% 6% 54% 19% 20% Dividend(incl.tax) 564 604 431 431
Margin,% 8% 11% 12% 13% Otherfinancingactivities 608 587 474 415
Interestpaid 599 586 474 415 Cashflowfromfinancingactivities 1,125 1,812 1,347 1,345
OtherNonOperatingIncome 100 77 100 100 Netchgincash 3 15 289 472
Pretaxprofit 700 1,343 1,835 2,338
Taxprovided 195 467 569 725
Profitaftertax 505 876 1,266 1,613 ValuationRatios
()ExceptionalExpenses 66 36 0 0
FY14 FY15 FY16e FY17e
NetProfit 572 912 1,266 1,613
PerSharedata
Growth,% 25% 60% 39% 27%
EPS(INR) 6.7 10.7 13.9 17.7
Margin,% 4% 5% 7% 8%
Growth,% 3% 60% 30% 27%
NetProfit(adjusted) 505 876 1,266 1,613
BookNAV/FDshare(INR) 33.6 39.0 48.8 61.8
No.ofEq.ShO/S(mnos) 86 86 91 91
FDEPS(INR) 6.3 10.0 13.9 17.7
CEPS(INR) 16.8 20.9 24.0 28.6
CFOPS(INR) 22.3 25.4 27.0 30.8
BalanceSheet DPS(INR) 4.0 4.0 4.0 4.0
Y/EMar,Rsmn FY14 FY15 FY16e FY17e Returnratios
Cash&bank 151 166 455 927 Returnonassets(%) 6.3 10.2 13.5 16.1
Debtors 800 902 983 1,167 Returnonequity(%) 18.7 25.6 28.4 28.6
Inventory 135 150 172 193 Returnoncapitalemployed(%) 14.4 21.5 24.7 27.4
Loans&advances 1,106 1,079 1,111 1,144 Turnoverratios
Othercurrentassets 41 74 77 80 Sales/Totalassets(x) 1.7 1.9 2.0 2.1
Totalcurrentassets 2,232 2,371 2,799 3,512 Sales/NetFA(x) 2.0 2.4 2.6 2.9
Investments 1 1 1 1 Workingcapital/Sales(x) 0.1 0.1 0.1 0.1
Grossfixedassets 12,167 12,489 13,409 14,500 Fixedcapital/Sales(x) 0.5 0.4 0.4 0.3
Less:Depreciation 4,764 5,420 6,345 7,345 Receivabledays 19.3 19.4 19.0 20.0
Add:CapitalWIP 140 91 100 100 Inventorydays 3.8 3.9 4.0 4.0
Netfixedassets 7,544 7,160 7,164 7,254 Payabledays 20.6 14.5 14.0 15.0
Totalassets 9,777 9,531 9,964 10,767 Workingcapitaldays 2.5 8.8 9.0 9.0
Currentliabilities 487 419 458 579 Liquidityratios
Provisions 249 144 144 144 Currentratio(x) 3.0 4.2 4.6 4.9
Totalcurrentliabilities 736 563 603 723 Quickratio(x) 2.8 3.9 4.4 4.6
Noncurrentliabilities 5,143 4,519 4,019 3,519 Interestcover(x) 3.4 4.1 5.6 7.3
DeferredTaxLiability 834 888 888 888 Dividendcover(x) 1.7 2.7 3.5 4.4
Totalliabilities 6,713 5,969 5,509 5,129 Totaldebt/Equity(%) 1.7 1.3 0.9 0.6
Paidupcapital 855 855 912 912 Netdebt/Equity(%) 1.6 1.2 0.8 0.5
Reserves&surplus 2,209 2,707 3,542 4,725 Valuation
Shareholdersequity 3,064 3,562 4,455 5,637 PER(x) 59.7 37.4 26.9 21.2
Totalequity&liabilities 9,777 9,531 9,964 10,767 PEG(x)yoygrowth 2.4 0.6 0.7 0.8
Price/Book(x) 11.1 9.6 7.7 6.1
Yield(%) 1.1 1.1 1.1 1.1
EV/Netsales(x) 2.6 2.2 2.0 1.7
EV/EBITDA(x) 18.9 13.3 12.0 10.1
EV/EBIT(x) 30.1 18.8 16.3 13.3


RatingMethodology
Weratestockonabsolutereturnbasis.Ourtargetpriceforthestockshasaninvestmenthorizonofoneyear.
Rating Criteria Definition
BUY >=+15% Targetpriceisequaltoormorethan15%ofcurrentmarketprice
NEUTRAL 15%>to<+15% Targetpriceislessthan+15%butmorethan15%
SELL <=15% Targetpriceislessthanorequalto15%.
Management
VineetBhatnagar(ManagingDirector) (9122)23002999
KinshukBhartiTiwari(HeadInstitutionalEquity) (9122)66679946
JigneshShah(HeadEquityDerivatives) (9122)66679735
Research
Automobiles Engineering,CapitalGoods Midcap
DhawalDoshi (9122)66679769 JonasBhutta (9122)66679759 AmolRao (9122)66679952
NiteshSharma,CFA (9122)66679965 HrishikeshBhagat (9122)66679986
PortfolioStrategy
AgriInputs Infrastructure&ITServices AnindyaBhowmik (9122)66679764
GauriAnand (9122)66679943 VibhorSinghal (9122)66679949
DeepanKapadia (9122)66679992 Technicals
Banking,NBFCs SubodhGupta,CMT (9122)66679762
ManishAgarwalla (9122)66679962 Logistics,Transportation&Midcap
PradeepAgrawal (9122)66679953 VikramSuryavanshi (9122)66679951 ProductionManager
PareshJain (9122)66679948 GaneshDeorukhkar (9122)66679966
Metals
Consumer,Media,Telecom DhawalDoshi (9122)66679769 MidCaps&DatabaseManager
NaveenKulkarni,CFA,FRM (9122)66679947 YashDoshi (9122)66679987 DeepakAgarwal (9122)66679944
JubilJain (9122)66679766
ManojBehera (9122)66679973 Oil&Gas Editor
SabriHazarika (9122)66679756 RoshanSony 9819972726
Cement
VaibhavAgarwal (9122)66679967 Pharma Sr.ManagerEquitiesSupport
SuryaPatra (9122)66679768 RosieFerns (9122)66679971
Economics MehulSheth (9122)66679996
AnjaliVerma (9122)66679969
Sales&Distribution CorporateCommunications
AshvinPatil (9122)66679991 SalesTrader ZarineDamania (9122)66679976
ShubhangiAgrawal (9122)66679964 DileshDoshi (9122)66679747
KishorBinwal (9122)66679989 SuniilPandit (9122)66679745
SidharthAgrawal (9122)66679934 Execution
BhavinShah (9122)66679974 MayurShah (9122)66679945
ContactInformation(RegionalMemberCompanies)

SINGAPORE:PhillipSecuritiesPteLtd MALAYSIA:PhillipCapitalManagementSdnBhd HONGKONG:PhillipSecurities(HK)Ltd
250NorthBridgeRoad,#0600RafflesCityTower, B36BlockBLevel3,MeganAvenueII, 11/FUnitedCentre95QueenswayHongKong
Singapore179101 No.12,JalanYapKwanSeng,50450KualaLumpur Tel(852)22776600Fax:(852)28685307
Tel:(65)65336001Fax:(65)65353834 Tel(60)321628841Fax(60)321665099 www.phillip.com.hk
www.phillip.com.sg www.poems.com.my
JAPAN:PhillipSecuritiesJapan,Ltd INDONESIA:PTPhillipSecuritiesIndonesia CHINA:PhillipFinancialAdvisory(Shanghai)Co.Ltd.

42NihonbashiKabutocho,Chuoku ANZTowerLevel23B,JlJendSudirmanKav33A, No550YanAnEastRoad,OceanTowerUnit2318
Tokyo1030026 Jakarta10220,Indonesia Shanghai200001
Tel:(81)336662101Fax:(81)336640141 Tel(62)2157900800Fax:(62)2157900809 Tel(86)2151699200Fax:(86)2163512940
www.phillip.co.jp www.phillip.co.id www.phillip.com.cn
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15thFloor,VorawatBuilding,849SilomRoad, 3rdFloor,35RuedelaBienfaisance 6thFloor,CandlewickHouse,120CannonStreet
Silom,Bangrak,Bangkok10500Thailand 75008ParisFrance London,EC4N6AS
Tel(66)222680999Fax:(66)222680921 Tel(33)145633100Fax:(33)145636017 Tel(44)2079295300Fax:(44)2072836835
www.phillip.co.th www.kingandshaxson.com www.kingandshaxson.com
UNITEDSTATES:PhillipFuturesInc. AUSTRALIA:PhillipCapitalAustralia SRILANKA:AshaPhillipSecuritiesLimited

141WJacksonBlvdSte3050 Level37,530CollinsStreet Level4,MillenniumHouse,46/58NavamMawatha,
TheChicagoBoardofTradeBuilding Melbourne,Victoria3000,Australia Colombo2,SriLanka
Chicago,IL60604USA Tel:(61)396298380Fax:(61)396148309 Tel:(94)112429100Fax:(94)112429199
Tel(1)3123569000Fax:(1)3123569005 www.phillipcapital.com.au www.ashaphillip.net/home.htm
INDIA:PhillipCapital(India)PrivateLimited
No.1,18thFloor,UrmiEstate,95GanpatraoKadamMarg,LowerParelWest,Mumbai400013
Tel:(9122)23002999Fax:(9122)66679955www.phillipcapital.in

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2064611577PC - VRL Logistics Initiating - Oct-2015 20151012163712

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2064611577PC - VRL Logistics Initiating - Oct-2015 20151012163712

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VRL Logistics

Hitting the growth highway

Rsmn FY15 FY16E FY17E

Diversified customer base and revenue source

State Agencies Branches TranshipmentHubs

Fuel (diesel) is a major componentof operating expenses accountingfor 2528% of

VRL foresees significant improvement in operating efficiencies and a decline in

VRL provides booking services through ecommerce portals such as www.vrlbus.in,

We believe the company can capitalise on the expected steady improvement in

2,000 10% 1000

40% 78% 79% 81%

GoodsTransportation PassengerTransportation WindPowerGeneration AirCharteroperations

JAPAN:PhillipSecuritiesJapan,Ltd INDONESIA:PTPhillipSecuritiesIndonesia CHINA:PhillipFinancialAdvisory(Shanghai)Co.Ltd.

UNITEDSTATES:PhillipFuturesInc. AUSTRALIA:PhillipCapitalAustralia SRILANKA:AshaPhillipSecuritiesLimited

Sr.no. Particulars Yes/No

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