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Thursday, April 16, 2015

VRL Logistics Ltd. IPO Review


Issue Highlights

Issue Period
15/4/15-17/4/15
Minimum Order Quantity
65 shares
Price Band
Rs. 195-205
Issue Size
2,31,16,000 equity shares
Issue Size (in Rs.)
450.76 -473.88 crore
Issue Type
100%  Book Building
Face Value
Rs. 10
Listing
BSE,NSE
Registrar
Karvy Computershare Pvt. Ltd.

Company Profile


Source: the Hindu BL
The company was originally incorporated as a private limited company under the name of ‘Vijayanand Roadlines Pvt. Ltd’ and later it was renamed as VRL Logistics Ltd. with its status changed to public limited company. The company is mainly engaged in the business of surface logistics and parcel delivery on pan-India level with the presence of its wide-spread network in 28 cities and 4 union territories across India. The company also provides luxury bus services in few states like Karnataka, MS, Gujarat, Goa ,Telangana ,AP,TN and Rajasthan.
The company is also involved in the business of Wind Power Generation, Air Charter Services and Hospitality though with minor business interests.

Issue Details:

Fresh Issue: 60, 00, 000 equity shares
Offer for Sale: 1, 71, 16, 000 equity shares
OS Shares before the Issue: 8, 55, 36,162 equity shares
OS shares after the Issue: 9, 15, 36,162 equity shares

Objects of the Issue:
(1)    Purchase of goods-transportation vehicles: Rs. 67.42 crore
(2)    Repayment/prepayment of debt: Rs. 28 crore
(3)    General corporate purposes: NA

Strengths:
(1)    VRL Logistics is a pan-India surface logistics service provider with one of the largest distribution network in India. The company enjoys a leadership position in India with a proven track record of 38 years of operations.
(2)    The company boasts a large fleet of owned vehicles and by December 2014, it had 3,546 owned vehicles and 455 buses.
(3)    VRL enjoys a diversified customer-base ranging from industries like FMCG, Food, Textile, Apparel, Furniture, Appliances, Pharmaceutical, Automotive Parts and many more.
(4)    The ‘Hub-And-Spoke Operating Model’ ensures higher efficiency in operations.
(5)    A thrust on adopting cutting edge software technologies helps the company in achieving higher operating efficiencies.
Risks:
(1)    The business being a capital intensive one and it needs time-to-time capital infusion and high-interest scenario is detrimental for the company.
(2)    High indebtedness of the company could be fatal in case of an economic downturn.
(3)    Competition in the logistics industry is stiff and any slippages or in-efficiencies either in services or pricing could be fatal for the company.
(4)    Environmental laws are becoming stringent day by day and to comply with the same company may require a few additional outlays of funds in future.

Financial Profile #:

Parameters
Value
P/E ##
19.7
PEG (profit) ##
2.5
PEG (EPS) ##
1
P/B ##
5.6
ROCE %
16.3
ROE %
28.3
Total Liability/Equity
1.9
NPM %
5.6
EV/EBITDA ##
17
# FY 15 annualized data using upper-end price of the band, Rs. 205
 ## using post-issue OS shares

Comparison with Peers:

Parameter
VRL
Blue Dart #
All Cargo #
GDL #
Gati #
PEG(profit)
2.5
6.36
NM
NM
6.68
NPM %
5.6
6.29
5.49
18.48
7.82
ROCE %
16.3
29.49
7.06
9.02
2.12
ROE %
28.3
19.58
4.61
6.08
3.21
Interest Cover
23.5
6247
3.46
27.35
3.74
# moneycontrol data -latest as available

Inference:

The fundamentals of this company are satisfactory but not great. What makes this issue lucrative is its pan-India presence and future potential of e-commerce boom which is supposed to increase by leaps and bounds with rising prowess of app-base buying in India.
VRL lags behind Blue Dart on return-ratios front but it is also being offered at lower valuations than BD. The present government is supposed to lay a great thrust on the infrastructure development and present minister of Road Transport and Highways, Nitin Gadkari , who had earned a sobriquet of Roadkari (one who makes roads), is supposed to do a lot in road development and the same is supposed to be favourable for a logistics company like VRL.
Higher debt of the company is a concern but to some little extent the same shall be lowered as the company plans to repay its loan up to Rs. 28 crore by the issue proceeds.
The stock of Gati had soared significantly (much ahead of its fundamentals) after Ramkrishna Damani bought a stake in it, as he was bullish on oncoming future growth of Indian e-commerce industry.
The future of this stock shall depend on overall global and Indian economy, crude prices and overall market sentiments but providing all these factors as favourable this company is definitely supposed to perform well in future.
These days market is honouring stocks with an emphasis on their future prospects rather than the current financial statements and this is why VRL is supposed to do well on the bourses.
I shall go for this issue.


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