Buy VRL Logistics; target of Rs 725: Emkay

Emkay's research report on VRL Logistics

VRLL’s Q1FY25 results were impacted by execution challenges faced due to unfavorable externalities such as: 1) driver shortage due to general elections, and 2) productivity losses due to extreme heat wave in North. Growing cost pressures has prompted VRLL to hike freight rates by 5-10% across customers, which should allay concerns around continued margin contraction over the last two years. The management expects mid-to-high single digit volume growth in FY25 on the back of aggressive branch additions and favorable monsoons supporting the textile and agro commodities. Cut in capex related to vehicle additions should also lend support to the balance sheet till volume growth improves.

Outlook

Factoring in the operational miss in Q1FY25, we cut our PAT 2%/6% for FY25E/26E, respectively. We maintain our BUY rating with Jun-25E TP of Rs725/share based on DCF methodology, implying 29x PER based on FY26E.