Buy VRL Logistics; target of Rs 910: Motilal Oswal

Motilal Oswal's research report on VRL Logistics

VRL Logistics (VRLL)’s tonnage growth is likely to be driven by: a) new branch additions that would lead to higher contributions from new geographies (net annual addition of 120 branches as of Sep’23 contributed ~4.5% to tonnage in 2QFY24); b) market share gains from the unorganized sector owing to heightened compliance, and c) new customer wins due to the ongoing demand for a pan-India service provider. VRLL is adding new trucks by investing INR3.5b in FY24 (capex cut from INR4.5b earlier), which would increase its tonnage handling capacity by ~20%. The company’s capacity increased to 84,726 tons in Sep’23 from 75,084 tons in Sep’22.  Further, VRLL’s healthy operating efficiency is projected to improve with in-house fleet maintenance linked to spare parts supply, in-house scrapyard for disposal of old fleet, CNG vehicles for last mile delivery, and procurement of diesel from refinery, which should sustain its profitability in a competitive environment. VRLL’s 16%/18% revenue/EBITDA CAGR over FY23-26 is anticipated to be driven by: 1) a shift in market share from unorganized to organized LTL operators, b) adherence to compliance by SMEs and rationalization of vendors, and c) tailwinds from the country’s economic growth. VRLL is well positioned to capitalize on its dominant position in the LTL segment given its strong network and diversified customer base.

Outlook

We roll forward our multiple to FY26E EPS. We reiterate our BUY rating with a TP of INR910 (based on 26x FY26E EPS).