VRL Logistics - value unlocking due to promoter actions

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Page 10 of 15: MORE CLARITY ON THE VOLUME AFTER Q1 or Q2

Question: Just wanted to understand after all these adjustments, will see volume growth under pressure for 1H at least of '26. So if we look at the full year, what kind of volumes we could end up with? What could be the realization like because the price hike benefit will go out after the first quarter? And some realization benefit will be there because of this restructuring which you
have done on the individual accounts. And secondly, what would be the margins, sustainable margins ahead because we did 23% this quarter. So FY '26, if I want to sum it up into volume growth realization and margins, then what it would look like?

Answer: Now since this rationalization exercise has been done in the last quarter, so this negative growth will continue at least for the first 2 quarters. And we can see some improvement in tonnage from the quarter 3 onwards. Since quarter 4 tonnage has been already dipped, we may show some good growth in the quarter 4. On a full year basis, again, the more clarity will come after the quarter 1 or quarter 2. So, depending on how the customer approach and all actually, we can give more clarity.

Page 11 of 15: REALIZATION AND MARGIN
Question: You mean 8% realization could be there for next year for FY '26?
Answer: Realization around 6% to 7%.

Question And what about margins, sir? This 23% margin, which we did in fourth quarter, how that could shape up in next year considering the volume trajectory and realization, everything?
Answer: See, volumes, again, the quarter 1, it will be maintained around at a good margin. But subsequently, what will happen, again, we have to consider some increment to the employee cost and other things. So based on that, the margins will be depending on these cost structures.

Question: So, any guidance you want to give, could it be like 20% range for the margin for this year?
Answer: Guidance can be more – clarity will come at least after quarter 2.

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Further, there is expectation that government can do GST rationalization in upcoming GST council meet.

Both of these steps are +ve of surface logistics players - like VRL

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Good results yoy, however followings points that could affect near termgrowth:

  • Revenue declined by 10% (to be seen vs Q3FY25 revenue, which was the last quarter before starting contract restructuring exercise) as the company is exiting non-profitable/low-profitable contracts
  • Branches reduced by 12 vs Q4FY25 (now total stands at 1241)
  • Total vehicles reduced by 228 YOY (vehicles scrapped > vehicles added), as a result capacity reduced 9% from 88,198 tonnes to 80,722 tonnes YOY
  • Company has mentioned that board has approved salary hikes in August, this will lead to impact margins in coming quarters (impact of 2-3% of revenue)
  • Other expense increased by 60% YOY and QOQ due to higher legal & professional charges & loss on sale/scrap of vehicles
  • Further annual reports stated that, “We would approach the impending vehicle capex cautiously and undertake fleet addition selectively over the short term.”

However, we should also note following quotes from Annual report which shows the management is now focussing on more operating efficiency:

  • “We have roped in M/s Price Waterhouse to study select core processes and identify improvement opportunities and implement desirable process changes to further improve on our efficiency”
  • “Branch infrastructure, routing of consignments, feedback from local customers and every other minute aspect is being looked into in great detail with a view to ensure betterment in operations going ahead”
  • “Our entire team is focusing on providing more quality service and towards this end we are minimizing the number of transhipments for consignment movement by aggregating consignments for a longer duration at select transhipments and deploying a direct vehicle to the destination. We have experienced that this leads to a gradual decline in the transit time, improved vehicle utilization and leads to better service.”
  • “many customers who left us owing to rationalization of freight rates have experienced the significant quality difference in the service of alternative service providers and are gradually coming back to our fold. We have seen such behaviour in the past too and are sure to retain good customers over the long term”

Feels that there could be some slowdown in short term given the above, however they could see customer coming back. In meantime Indian consumption demand should also revive, on the back of Income tax cuts, RBI rate cuts & expected GST rate rationalization

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Q1FY26 conference call notes:

  • Contract restructuring exercise completed – total loss of 16% volumes, however 3-4% has come back. Net 12% loss till now.
  • Volume should come back from Q3FY26; the current quarter has seen some uptick. Q4FY26 should see growth. For full FY26, volume will largely be the same as FY25 but at higher yield (7852 per tonne vs 7315 in FY25)
  • For volumes, the marketing team is making efforts to bring new customers. Also looking to grow in North east region where presence is weak currently
  • FY27 volume growth to be around 8%
  • Other expenses include loss of 3.5cr on the sale of truck 3.5cr, which will not be there in future quarters. It also includes 2-3 cr or legal fees, etc, which will continue for 1 more quarter & then could stop. Q2 should see some realisation from the sale of scrap, however, not significant
  • During Q1, added 16 branches & closed 30. Going forward, addition will be more, & closure should come down.
  • During Q1, truck count was reduced to increase efficiency; when tonnage picks up, we will purchase more. In Q1 spent 9cr on truck addition
  • CAPEX of 15cr (this includes 9cr on truck addition); will do more capex on trucks / transshipment hubs as & when required
  • Employee salary hikes announced, this will be ~3% of revenue, hence sustainable EBITDA margins post this is 18%
  • No further price hikes this year, if costs are at current levels
  • Of total revenue, 38-40% is door-to-door, earlier it was 25%
  • Pricing of door to door service is similar to express players, difference in average yield is because company largely operate in smaller routes while express players operate on longer routes.
  • Contribution of new branches is 1% to tonnage

Considering above, company revenue should grow by 6-7% this year. With sustainable margins of 18% (excl. one-off like sale of trucks, etc), company should make PAT close to 200cr, hence likely trading at 25x forward P/E.

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