COMPANY RESEARCH
VRL Logistics: A long term growth story – Not Rated
CMP Rs261
VRL Logistics (VRL) is a pan-India logistics player with interests in surface logistics & parcel delivery. It is engaged in the business of goods transportation (contributing 79.5% of FY16 total revenues), passenger transportation (18.6%), sale of power (1.3%) and air chartering service (0.7%). Over the years, the company has built one of the largest commercial vehicles fleet size in the private sector of 4,329 vehicles (3,904 goods transport vehicle and 425 buses). The network of 693 branches and 270 agencies in 963 locations complement the 48 strategically located transhipment hubs. We believe, VRL is one of the best managed companies in Indian transportation space on the back of its consistent operational efficiency, better control over time bound delivery coupled with strong presence in Southern India. Unlike most of the listed logistics players who grapple with a cash-burning, high working capital and operating expense-based model due to third party hired vehicles, VRL has built its business based on asset-heavy model, enabling the company to cover larger number of routes and ensure greater leverage in terms of pricing to command higher margins. Despite asset ownership, the company has 0.3x net D/E ratio. ROCE/ROE stood at 24.2%/23.5% in FY16.
VRL clocked revenue CAGR of 11.1% over FY12-FY16, driven by steady performance from goods transport (12.1% CAGR) and passenger transportation business (9.9% CAGR). EBITDA and PAT improved at a CAGR of 8.7% and 7.5%, respectively, from prudent cost control. Initiatives such as tie ups with ~100 pump retailers, use of bio-diesels as an alternate fuel, association with CEAT and Michelin India for tyres and in-house maintenance teams act as key catalysts for VRL's strategy aimed at improving margins. Going ahead, we expect tonnage improvement in goods transportation segment owing to good monsoon, and increase in average realization per passenger price in bus segment, which will drive topline growth. At the CMP, the stock is trading at 23.3x/9.4x FY16E P/E and EV/EBITDA. We maintain our positive view on the stock.
NBCC (India): The Delhi Connection
NBCC is a perfect example of perceived competitive advantages. Nomination can never be the sustainable right to win as seen with multiple state organisations. Multiples based on incalculable opportunities ignore the possibility (and probability) that even the current order book has multiple reasons to disappoint. Stagnating and retiring talent, fragmented vendor ecosystem and implausible quantum of real estate to sell in Delhi are worrisome. Undoubtedly, the company should post high earnings growth over FY16-20 but present valuation implies 17% EBITDA CAGR for 15 years (!). Our stance is at risk from order news-flow from unknown corners but fortunes are susceptible to inevitable competition and unpredictable political whims. Sell it early before real(i)ty sinks in; our TP implies 16x FY19E EPS. (Utsav Mehta, CFA, +91 22 3043 3209)
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