VRL Logistics promoters recently announced foray in regional aviation business in their personal capacity, which the shareholders haven’t taken positively.
As per company disclosure to the exchange, the Company has claimed that:
- The Company is not contemplating entry in aviation space
- Promoters are promoting a new company in individual capacity (current promoter holding 69.57%)
- This only expression of intent and the promoters continue to hold majority share
Despite these assurances, the shares of the Company have tanked 30% and traded at CMP 275.
Let’s look at VRL logistics business and numbers:
VRL is essentially into transportation, with 18.44% being passenger transportation and 78.7% being goods. Within goods transport, 68.45% of the turnover comes from parcel delivery and the rest through industrial transport.
The Company has pan India presence with 733 branches and 291 agencies. Total owned vehicles number at 4253 out of which 381 are buses. Also important to note, 69% & 65% vehicles are debt free and 35% and 63% are less than 5 years old in goods and passenger transport segment respectively.
Coming over to financials:
FY 2016 was a lull year after some good performance since 2011. The Company launched IPO in April 2015 at listing price of 203.
Market cap: 2870 cr
5 year sales growth: 18.63%
ROCE: 17% (Mar '16)
EPS: 11.96 (Mar '16)
Cash flow position:
Cash generating company raising 200cr+ from operations, most of which is used in repayment of loan and dividend payment over the last 2 years.
More details can be found in investor presentation here.
There is no doubt about the quality of business but due to promoter comments, the stock is available at a PE of 23 against industry PE of 32 and stock’s own PE of 33 before the fall. Considering the positive scenario for logistics industry and factoring in the special situation, the stock can offer significant gains from CMP.
- Company has a strong market presence and sales growth. Sales have doubled while OPM margins have remained in the range of 14-18%.
- Debt has been decreasing during the same period. Current interest coverage at 8.9x.
- GST can be a boost to logistic business and open more routes for development
- Other than promoter, Dr. Vijay Sankeshwar and his son, the current COO and CTO have been with the Company with a very long time, with the COO being associated since 1984 (inception). Most other operational heads from 1994-95.
- If the aviation business takes off (pun intended!), it will be a huge boost for VRL and will open up new routes for cargo transport
- Biggest risk remains of a Kingfisher like situation where VRL is used to guarantee aviation loans. All this is assuming the promoter does go ahead with the aviation company. Even so, the situation will take atleast 2-4 years to arise.
- Promoter dilution will be there but how much? The promoter holding was 77.21 as on March 15 and is 69.57% as on March 16.
The promoters in BSE filing have claimed that they will start with 1400 cr of investment, out of which 400 cr will come from equity and 1000 cr from debt.
Even if we assume that the promoters will fund the entire 400 cr themselves through their stake in VRL and that they will sell enough stake at current CMP, it works about to ~17%. The promoters will end up with 52% stake.
- Q4 FY16 and FY16 full year has seen lower sales and profits.
Disc. - Not invested, tracking