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Kotak Securities
VRL Logistics (Buy)
CMP: ₹331.70
Target: ₹375
VRL was founded in 1976 by Dr Vijay Sankeshwar in Gadag, a small town in North Karnataka with a single truck and a vision that was way ahead of its time. VRL gradually expanded its services to Begalurur, Hubli and Belgaum. From this humble beginning VRL has today grown into a nationally renowned logistics and transport company.
VRL Logistics has reported weak numbers for FY17, due to factors such as weak business environment, demonetisation in Q3FY17, increased employee cost and Kaveri river water issue in southern India. However, going forward, we expect things to improve for the company on the back of 1) Government initiatives to improve road infra; 2) GST Act and Motor Vehicle Act; 3) Effective management of fuel cost; 4) Effective internal control systems; 5) A strong management team; and 6) Healthy GDP growth.
We estimate earnings CAGR of 39 per cent over FY17 to FY19E with improvement in EBIDTA margins and return ratios of the company. We value the stock at 24x FY19 earnings and maintain ‘Buy’ with an increased target price of ₹375 (from ₹340)
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