VRL Logistics IPO note by ICICI Direct

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VRL Logistics (VRL) is one of the leading pan-India surface logistics and parcel delivery service providers. The company was founded in 1976. VRL is currently the largest fleet owner of commercial vehicles in India with a fleet size of 3546 owned vehicles. The company operates through 624 branches of which 48 serve as strategic transhipment hubs and 346 franchises. VRL also provides luxury bus services across Karnataka, Maharashtra, Goa, Andhra Pradesh, Telengana, Tamil Nadu, Gujarat as well as Rajasthan. As part of the expansion plan, it is planning to increase its fleet size and reduce debt, which is the objective of this IPO. Investment rationale Well established player with pan-India presence VRL, which has been operating for over 38 years, has managed to establish a brand name with its extensive goods transportation network across India. With 970 branches cross 70 locations, the company caters to a diverse mix of customers including corporate, small and medium enterprises (SMEs), distributors as well as traders. Integrated hub-and-spoke model enabling optimised margins VRL has 48 transhipment hubs, which enables it to consolidate and distribute consignments effectively. This model enables the company to cater to a wide range of customers with multiple pick-ups and delivery points. This is done by optimal aggregation of less than truck load (LTL) and full truck load (FTL) freight parcels on select routes, which will maximise revenue per truck. In-house capability in technology, vehicle customisation and maintenance VRL has developed in-house software technology capability, which helps it to track vehicle maintenance and optimise load planning. Further, its inhouse vehicle body designing facility at Hubballi enables the company to fabricate vehicles with lighter and longer bodies to carry higher tonnage. An additional 14 satellite workshops in other cities/towns across India minimises on-road repair expense and downtime. These capabilities improve the utilisation level, further enhancing the operating margins. Concerns • Inability to pass on any increase in fuel costs & other expenses • Legal proceedings against the company • Higher dependence on centralised hub at Hubballi • Competition from existing and new players • Risk of accidents and damage or theft of cargo • Low freight volumes and passenger occupancy due to a slowdown in the overall economic environment Priced at FY15E (annualised) PE multiple of 18x on lower band; 19x on higher band At the IPO price band of | 195-205, the stock is available at a multiple of 18-19x FY15E PE (post dilution).

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