VRL Logistics Q4 show reflected slowdown in rlys freight: Emkay

Speaking to CNBC-TV18 Sachin Shah, Fund Manager, Emkay Investment Managers, said VRL Logistics' poor numbers were a result of the slowdown in railways freight volumes and road transport. The company reported 32 percent year-on-year (YoY) decline in net profit at Rs 13.21 crore for the quarter ended March 2016 (Q4FY16). Revenues grew 4.5 percent at Rs 416 crore on YoY basis.On Ujjivan Financial Services, which had posted strong fourth quarter numbers, he said has great management backing it.Below is the verbatim transcript of Sachin Shah’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: Let us start with the stock of the day Larsen & Toubro (L&T). What are you telling your clients after this big rally? Can we still buy or is it now set for some bit of consolidation may be before fresh round of buying emerges?A: My sense is that it is now going to probably consolidate around here. What has basically happened is that after the last few quarters of results with L&T and with some of the other businesses I think the expectations with that stock was very low and extremely subdued.Q4 has been definitely a good positive surprise. However, if you look at the full year numbers FY16 versus FY15, I don’t think there has been any major change in terms of where you will say that capex cycle has come back in a big way or even if you look at the guidance for next year, I don’t think there is any major change as such.Broadly, it is still a wait and watch as far as the overall capex cycle in this country is concerned. I think that is what even probably the management has been indicating to some extent. From that perspective, I think it is still a wait and watch for this kind of large stocks in the capex.Ekta: The other big story this week has been what has happened with VRL Logistics. The stock is currently around Rs 293. It is in the green today do you think that it could recover to those levels of around Rs 400 or because of those regional aviation plans that overhang is just going to continue?A: The news on this aviation business has been probably disproportionately blown out and I think management has been very categorical in saying that the aviation business will not be part of the listed VRL business. It is going to be in their private capacity. I don’t think there is an ambiguity on that part any more for sure that is one.Number two, the more important thing is that if you see the way this business has been built up by the management and the kind of a delivery that they have been doing for all this years I think it is exceptionally good. They are definitely one of the better managements in the Indian Corporate world. So, I have no second thoughts as far as their execution and their capability and also their integrity is concerned that is number two.Number three, the biggest disappointment if you ask me has been the Q4 results. Obviously, the stock valuations did not give you any great margin of safety and therefore in spite of we liking this business and the management we weren’t able to own it because at those valuations margin of safety wasn’t there.Let us just look at FY16 numbers, I mean they have delivered a profit in the range of about Rs 100 crore odd and the market capital is now probably in the range of anywhere between Rs 2,500 crore to Rs 3,000 crore. I have to say that ranges which is because stock has been so volatile in the last two to three days, currently it must be in the range of over Rs 2,700 odd crore. This means that the valuations are probably just about 25-27 times on a historical number. Also if you look at the overall economy, there has been a major slowdown in the trade.If you look at the railway freight the volumes there has been negative for last two to three months now. If you look at some of the road developers, road transport they are also not doing anything great. So, it is probably to do something with the economy.With all the noise around we have not been able to talk with the management and try to understand where the business is going. However, hopefully now with things settling down, we will probably get better view.If somebody believes that this business is going to grow the business outlook is good, the current valuations are fairly reasonable. So, it is definitely on our radar at this point in time.Anuj: What about Ujjivan Financial Services? Would that be on your radar as well? It has been a spectacular performer, didn’t have the best of the listings but post listing we have seen phenomenal gains?A: Ujjivan again fantastic result, very great management, in fact just last week some time one of their private equity investors from Sequoia had written a very nice article in one of the business dailies about how those managements and what kind of integrity they have. Very good and again the numbers that have come yesterday have been very good.The important thing with Ujjivan always was that if you look at some of the pure and the listed space like SKS Microfinance, which is what we own -- we don’t own Ujjivan at this point in time.SKS has delivered a profit in the range of about Rs 300 crore, trading in the range of market capital of about Rs 8,000 crore which is about closed to 27-28 times whereas, Ujjivan was always available at 15 price to earnings (P/E) before today’s move. Even with today’s move now it will be probably at about 20 P/E because the market cap is probably in the range of about Rs 3,600 crore with a profit of Rs 180 crore.The important thing is that Ujjivan is now going to migrate into a bank. So there will be some bit of consolidation in terms of their business, which is why they will be some gap between the valuations of SKS and Ujjivan or Equitas. So now it has caught up with the valuation gap. Broadly probably I think it should stay around these levels now from here on.