VRL Logistics - Focus On Volume Growth; Aggressive Branch Expansion Continues: Motilal Oswal

Motilal Oswal Report

VRL Logistics Ltd. is on track to deliver 15% volume growth in FY24E on the back of:

1. growth in underlying business and

2. market share gains through significant branch additions in the last couple of years.

VRL Logistics has expanded its branch network aggressively by adding 275 branches since April 2021 (~30% additions to the network). VRL Logistics is looking to add another 100 branches in FY24E.

Following the sale of non-core businesses (bus, wind and transportation by Air segment), VRL Logistics is now a pure-play goods transport player, with focus on the highly profitable like-to-like segment.

The company is also adding new trucks by incurring a capex of Rs 4.5 billion in FY24, which would raise its tonnage handling capacity by ~20%. Additionally, VRL Logistics is also looking to add two more owned fuel pumps in Delhi and Ambala, which will complement the existing six pumps. These additions are expected to help the company in controlling fuel costs better and support margins.

We expect VRL Logistics to benefit from the:

1. growth opportunity in the LTL business and

2. extensive branch additions in new geographies.

We expect VRL Logistics to clock 15% volume growth in FY24 with 16% margin. As the share of organised players is likely to improve in the coming years, the outlook appears promising for established pan India players like VRL Logistics.

We reiterate our 'Buy' rating with a target price of Rs 825 (based on 25 times FY25E earnings per share).

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