Buy This Multibagger Small-Cap logistics Stock For Robust 36% Potential Upside: Motilal Oswal

Motilal Oswal, a leading brokerage firm, in its recently published report on VRL Logistics Ltd has given a buy call to the stock of the company for a target price of Rs 860 apiece. The Brokerage is bullish on the stock of the company as it claims a potential upside of 36%. VRL Logistics is an Logistics sector small-cap company having a market capitalization of Rs 5,640.73 Crore.

Stock Outlook

The current market price of VRL Logistics' stock is Rs 638.05 apiece, trading 1.70% below its previous close. The 52-week low of the stock recorded in October 2021 is Rs 302.20 apiece and 52 week high recorded in July 2022 is Rs 720 apiece, respectively.

Returns on Investment

The shares of the company in the past 1 week surged by nearly 3.84%. In the past 1 & 3 months, it surged 2.93% and 4.33%, respectively. It gave 83.83% in a year. Over the past 3 years, the shares surged 132.68%, giving multibagger returns. In the past 5 years, it gave 80.89% positive returns.

To exit Bus operations; to focus on the high growth Goods Transport

VRL Logistics announced the sale of its Bus division for INR2.3b to Vijayanand Travels Pvt. an entity owned by the promoter group. The slump sale is being undertaken on the basis of an independent valuation obtained from Grant Thornton Bharat and has been executed at an arms-length basis. The transaction is subject to the receipt of requisite approvals. 

As per the management, average revenue per passenger in the Bus segment has been declining, while costs have been on a rise. VRL Logistics has been unable to pass on the cost increase to customers due to rising competition. The majority of its Bus fleet is above nine years old and is due for replacement, which will require a higher capex. VRL Logistics has seen a sharp drop in capacity utilization of Buses to 50% in FY22 from 60% in FY18. Due to the above-mentioned concerns and a weakening outlook, the management has decided to exit this business. 

Sale of the Bus segment is a positive for VRL Logistics as the management will be able to better focus on the high growth Goods Transport business. The proceeds accruing to VRL Logistics will be used to partially fund truck fleet additions. It may take on lower debt than that estimated earlier. EBITDA margin can be better in FY24 than that expected earlier as the Bus segment was generating lower margin and was a drag on overall profitability.

Overall performance to improve with the sale of the low growth Bus business

VRL Logistics is selling its Bus segment, which is engaged in Passenger transportation and currently owns a fleet of 277 buses. It operates buses in Karnataka, Maharashtra, Andhra Pradesh, Telangana, and Goa. The sale, at INR2.3b, is in line with the valuation of its Bus operations as conducted by Grant Thornton Bharat and its net worth is INR0.35b. VRLL is likely to see a net cash inflow of INR1.9b after taxes. The Bus segment has been struggling with low capacity utilization, lesser margin, an ageing fleet, and excessive competition from the Railways and regional Airlines with an increase in new routes and capacities.

Valuation and view

Motilal Oswal said, "We have revised our FY24 EPS estimate upwards by 8% to incorporate improved profitability, with a better EBITDA margin and lower debt in FY24. We now expect VRL Logistics to clock a revenue/EBITDA/PAT CAGR of ~14%/17%/30% over FY22-24. The stock trades at 21x FY24E EPS. We maintain our Buy rating, with a revised Target Price of INR860 (28x FY24E EPS)."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.