Small Cap Logistics Stock Falls 12% In 3-Months, Motilal Oswal Sees 38% Return: Buy

Motilal Oswal has recommended investors to buy small cap logistics sector stock, VRL Logistics Ltd and assigned a target price of Rs 730 apiece. If you buy VRS Logistics now, you can get potential 38% upside.

VRL has recently implemented a price hike of ~5% in its goods freight business (last hike was done in Apr'21). The price hike has been implemented for categories and products that form ~60% of total volumes. Check key takeaways below:

1. VRL Logistics Stock Performance & Return

The last trading price of the stock is Rs 528 apiece with an intraday decline of 1.73%. The stock's 52-week high is Rs 719 apiece and 52-week low is Rs 398 apiece, respectively. The company has a market capitalisation of Rs 4671 crore. The stock has declined 12% in last 3-months, surged 20% in last 1-year, 94% in last 3-years, and 25% in last 5-years.

2. Price Hike In The Goods Segment To Support Margins

Since Apr'21, VRL had not undertaken any price hike despite an increase in the cost such as fuel and toll charges. It has aggressively focused on branch expansion and gaining market share.

However, now VRL has increased the prices by 5% (for 60% of volume category), which is expected to improve margins in 4QFY23 and beyond. As the aggressive branch addition continues, VRL expects to sustain volume growth of >20% despite the price increase.

3. Balance Sheet To Improve Further

VRL has now become a pure play goods transporter in the less-than-truck-load (LTL) segment after the bus business sale. The LTL segment is a fast-growing business with strong entry barriers.

VRL would receive INR1.9b (net of tax) of fund inflows from the sale, which it plans to use to partial fund its capex requirement of the goods business. With these funds and strong operating cash flows, VRL would be almost debt free at FY24-end despite completing the INR5.6b capex plan.

4. Valuation And View

According to Motilal Oswal, "We believe the sale of the bus segment and the recent price increase in the goods segment are positive for VRL. We expect VRL to clock a 21% volume CAGR over FY22-24 in the goods business, with faster branch additions in untapped regions. We expect a revenue/EBITDA/PAT CAGR of 15%/13%/20% over FY22-24. We maintain our BUY rating with a TP of INR730 (28x FY24E EPS)."

5. About VRS Logistics

VRS Logistics is a leading movers & packers and came into existence in 1983. Its service offering includes household Moving, domestic and International Shifting,loading and un-loading, packing of goods, vehicle transportation, warehousing services and many more.

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 taking any investment decision.