IPO Analysis of VRL Logistics

Sub Name: Financial ServicesFaculty Name: Dr.S.S.Shanthakumari

Slot:B1

Submitted By: S Ranganathan-14MBA0129

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About Industry:

Logistics is the backbone of the economy, providing the efficient, cost effective flow of goods on

which other commercial sectors depend. The logistics industry in India is evolving rapidly and it

is the interplay of infrastructure, technology and new types of service providers that will define

whether the industry is able to help its customers reduce their logistics costs and provide

effective services.

Despite weak economic sentiments, the logistics & warehousing industry continued to witness

growth largely due to growth in retail, e-commerce and manufacturing sectors. The Global

Logistics sector is expected to grow at around 10-15% in the period 2013-14. With this forward

looking attitude and a promise of growth and improvements, the service oriented logistics

industry is all set to expand beyond the horizons in the latter half of this decade, utilizing this

fiscal year as its launch pad.

India’s logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport

infrastructure, e-commerce penetration, impending GST implementation, and other initiatives

like ‘Make in India.’ This offers opportunities across the spectrum for companies in

transportation, storage, distribution, and allied services, according to a report by Motilal Oswal

Securities Ltd. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the

GDP growth.

Moreover, infrastructural bottlenecks that have stifled sector’s growth and promoted inefficiency

are being addressed by the government. Building of dedicated rail freight corridors will promote

efficient haulage of containerized cargo by rail. One key advantage of the dedicated freight

corridor is that freight trains could be run on time tables similar to passenger trains, and the

frequency can be theoretically increased to one train in 10 minutes. This will reduce time for

goods transportation between Mumbai and Delhi to 18 hours from 60 hours now. Also, setting

up of various industrial corridors along the dedicated freight route will metamorphose the

warehousing business– from small warehouses spread across the country to large, global-size

warehouses concentrated in a few hubs.

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Indian logistics sector is estimated to have grown at a healthy 15% in the last five years.

However, growth in sub-sectors varies, with the lowest being in basic trucking operations and

highest in supply chain and e-tailing logistics. Some studies estimate the share of India’s

logistics spend in GDP at 13% (versus 7-8% in developed countries), implying overall size of

$180-220 bn (direct costs +wastages from inefficiencies). A comparison with other countries

shows inefficiencies are high in the Indian logistics sector.

Despite being an economical mode of transport, railways has lost market share in freight

movement to roads in the last few decades due to capacity constraints. Compared to other

countries, India’s rail share in goods transport is 31%, which has come down from 60% in 1980s

and 48% in 1990s.

Another key constraint is administrative delays. Despite being a relatively low-cost country,

logistics cost in India is higher due to administrative delays led by paper work—leading to huge

inventory investments and wastage—and a complex tax structure.

Also, low penetration of new technology in the supply chain process is resulting in damage of

goods. India has the least warehouse capacity with modern facilities, and given the fragmented

industry state (large share with unorganized players), investment in IT infrastructure is almost

absent at required scale.

However, when compared with developed countries, the Indian logistics industry is still

considered to be underdeveloped. The major restrictions hindering the growth of logistics

industry in India include the poor conditions of infrastructures and transport vehicles, complex

tax laws, complexity of international trade documentation process and lack of IT infrastructure,

shortage of professionally competent logisticians and insufficient technological aids and the lack

of industry readiness. Due to these restrictions, the logistics costs in India are still higher than in

the developed markets. It is estimated to be around 13% of GDP, against 9% of GDP in the US.

(This is however lower when compared to countries like China which accounts for 20% of

GDP). It is also forecasted that the potential savings for India if logistics cost decreases by 1% is

about a significant amount of $4.8 billion per year.

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Transportation is a key element in a logistics infrastructure. Adequate capacity and reliability of

transport infrastructure and services are important factors which contribute towards the ability of

the country to compete in the field of international trade and attract foreign direct investment. It

is necessary for the country of the size of India to create a policy that encourages competitive

pricing and coordination between alternative modes in order to provide an integrated transport

system that assures the mobility of goods at maximum efficiency and minimum cost.

About Company:

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 Bangalore, Hubli and Belgaum. From this humble beginning VRL has

today grown into a nationally renowned logistics and transport company which is also currently

the largest fleet owner of commercial vehicles in India with a fleet of 4077 Vehicles (Including

373 Passenger Transport Vehicles & 3704 Goods Transport Vehicles amongst others). VRL

finds mention in the Limca Book of Record as the largest fleet owner of commercial vehicles in

india in the Private Sector. Mr. Vijay Sankeshwar has now been joined by his son Mr. Anand

Sankeshwar who brings in newer strategies to further drive the growth of the Company.

    Over the years, VRL has pioneered in providing a safe and reliable delivery network in the

field of parcel service. It has spread its operations to Courier Service, Priority Cargo & Air

Chartering to meet the growing demands of its burgeoning customer base.

 3PL & Warehousing solutions offered by VRL are tailor-made and cater to unique needs of its

diverse customer base. With the largest goods transportation network in India, VRL parcel

service is indispensable for a large number of Corporate Houses. This network spans the length

and breadth of the country and is supported by strategically located transshipment hubs. We

operate through a network of 1013 Branch and franchisees to cater our valuable customers and

we are now in the process of expanding our services to reach even the remotest locations of the

Country.

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General Parcel & VRL Priority:

General Parcel forms the core of VRL’s business and involves pan Indian movement of

consignments of varying size and weight across the country on a Less than Truck Load (LTL)

godown to godown Basis. The Company also provides the option of door collection and door

delivery to the customers at a cost. The Priority Cargo business involves door-to-door delivery.

VRL offers its goods transportation services across 28 States and, 4 Union Territories covering

all major cities and towns in India and Kathmandu in Nepal. VRL has its exclusive offices across

606 towns and cities in India. Operations in this division are conducted through a network of

1013 branches and franchisees. We differentiate ourselves from other service providers through

our wide service network, as well as our ability to provide door-to-door services through

company-owned vehicles. We provide our customers with billing, collection, load tracking, pick-

up and delivery services. Operating through owned vehicles enables safest possible movement

for consignments with lowest incidences of theft, pilferage, damage, etc.

* Surface transportation for best last mile connectivity

* Online track & trace facility

* Dedicated company owned vehicles

* 24x7x365 days operations

* Consignment size ranging from 1 kg to 40 tons.

* Door pick-up and door delivery facility

* Dedicated customer care window

* On-time delivery.

* Extensive nation-wide network.

* Best in class service record.

Courier Service Business:

We offer Courier services for time sensitive documents and packages. Presently, our Courier

offering is available within the State of Karnataka. Certain major out-of-Karnataka locations are

being serviced through tie-ups with other operators. Our Courier business is operated in 109

towns and cities. Apart from catering to walk-in customers, we also pick up commercial

documents and packages directly from customers and deliver these to their assigned destination

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in a time-bound manner on a door-to-door basis. In compliance with Indian laws, we do not

provide service in relation to mail and letters. Our service offering in this vertical includes: time-

certain deliveries of documents and packages and local ground transport for hand-deliveries.

* Door to Door time bound service

* Multi-Modal Connectivity

* Time bound Deliveries

* Special Service to and from Remote locations

* Topay / COD Facilities on Delivery

* Return / Reverse pick-Ups

* Late Pick-ups and Early Connections

* Cash management and L.C. Service for Bank

Full Truckload Services (Ftl):

 We provide FTL service to our customers by leveraging our broad base of select branches as

well as through our network of independent brokerage agents. We provide door-to door FTL

service to our customers, in which the goods are loaded on to our vehicle at the premises of the

customer and then delivered to the specified destination. This service is typically used by

manufacturers that have large quantities of goods to be transported and is offered at a pre-

determined price. In general, we provide FTL services to optimize capacity utilization of our

vehicles or to those customers who offer attractive margins. We maintain our network of

independent brokerage agents that have partnered with us for a number of years. Brokerage

agents complement our network of our branches by widening access to customers requiring such

FTL service.

Other Capabilities:

Within the goods transport domain, VRL also has capabilities for the transportation of vehicles

(cars) and liquid transportation. VRL owns a fleet of 102 car carrying vehicles and is a vendor of

choice to reputed clientele such as Maruti, Nissan, Hyundai, Toyota, etc. The Company also

operates 23 tankers for transportation of liquids and chemicals. These are presently being used

for transportation of fuel, molasses and the like. Based on specific client request, VRL also

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undertakes the movement of specialized cargo such as delicate testing equipments, high voltage

testing equipments, high voltage control panels, high voltage circuit breakers, automobile chassis

frames, extra wide cabins, glass, high capacity transformers, etc.

VRL TRAVELS:

VRL is one of the front runners in the Indian Passenger Travel Industry amongst the private

sector players. These operations are conducted under the aegis of “VIJAYANAND TRAVELS”

covering more than 350 routes connecting nearly 100 destinations with over 373 luxury Buses/

Coaches. It is the Market Leader in Karnataka's Private Passenger Travel Industry. Our customer

have the choice of several bus types, viz. AC / Non A/c Sleeper coach, AC / Non A/c Semi

Sleeper / Seater, etc. Our fleet comprises a wide range of vehicles of several makes such as

Volvo, Isuzu, Ashok Leyland, etc to cater to every customer pocket preference.

VRL AIR CHARTING:

In 2008, VRL Logistics Ltd. ventured into the Indian Air Chartering Industry. It was a gradual

progression for the company, from Surface Transport / Passenger travel to Air Chartering. The

Indian Aviation Industry has experienced a tremendous growth in the last few years, more so in

the Private Aviation Sector. Keeping in mind the emerging market demand, VRL decided to

enter the Air-charter Industry and serve VVIPs, VIPs & Corporate India. To this end, the

Company had acquired a brand new, Premier Jet 1A aircraft, manufactured by Hawker

Beechcraft Inc, USA. We offer the Jet aircraft on charter basis to the Corporate sector, Leisure

and Tourism sector, Special Mission charter, Event Management, Advertisement Agencies and

VIP flights. During financial year 2013-14, the Company acquired another second hand aircraft

of similar make from Force Motors Ltd., the erstwhile owners and has also deployed this aircraft

for the chartering.

VRL Outdoor:

VRL permits the usage of its vehicles for branding. Reputed corporate have had tie-ups with us

in the past and these include Mahindra & Mahindra, Bosch, Maruti, Michelin, Hindustan

Petroleoum, United India Insurance, National India Insurance, etc.

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VRL's goods transportation service business serves a broad range of industries, including the fast

moving consumer goods (FMCG) sector as well as other industries including food, textiles,

apparel, furniture, appliances, pharmaceutical products, rubber, plastics, metal and metal

products, wood, glass, automotive parts and machinery. The company operates through a hub-

and-spoke operating model which enables to transport various parcel sizes and provide its

customers with access to multiple destinations for booking and delivery of goods. Its extensive

network enables the company to provide "last mile" connectivity to even remote areas in India.

FINANCIAL FEASIBILITY

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Financial Results:

During the last year your Company recorded revenues of Rs.1678.86 crores as against

previous year’s revenues of Rs.1503.77 Crores depicting a growth rate of 11.64% and earned

Profit before tax (PBT) of Rs.137.90 crores inclusive of an exceptional item of Rs.3.72 crores

which represents the profit earned on the sale of land held by the Company at Bangalore,

Karnataka. The corresponding PBT for the earlier year was Rs. 76.76 Crores. The company’s

Goods Transport Division has achieved a growth rate of 13.88% as compared to previous year

and the Bus Operations division witnessed an increase in the divisional revenues by 7.26%.

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ANALYSIS OF IPO

Company Promoters:

The promoters of the company are:

1. Dr. Vijay Sankeshwar

2. Mr. Anand Sankeshwar

Objects of the Issue:

The objects of the Issue are The Issue comprises of the Fresh Issue by the Company and an Offer

for Sale by the Selling Shareholder. The Company will not receive any proceeds from the Offer

for Sale by the Selling Shareholder and the proceeds received from the Offer for Sale will not

form part of the Net Proceeds. VRL proposes to utilise the funds which are being raised through

the Fresh Issue, after deducting the Issue related expenses to the extent payable by it towards

funding the following objects:-

Purchase of goods transportation vehicles 674.15

Repayment/pre-payment(Rs.280 million), in full or part, of certain borrowings availed by

Company

General Corporate Purposes.

Issue Detail:

Issue Open: Apr 15, 2015 - Apr 17, 2015

Issue Type: 100% Book Built Issue IPO

Issue Size: 23,116,000 Equity Shares of Rs. 10

Issue Size: Rs. 473.88 Crore

 Face Value: Rs. 10 Per Equity Share

 Issue Price: Rs. 195 - Rs. 205 Per Equity Share

 Market Lot: 65 Shares

 Minimum Order Quantity: 65 Shares

  Listing At: BSE, NSE

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Listing Day Trading Information:

VRL Logistics IPO Registrar: Karvy Computershare Private Limited.

VRL Logistics IPO Lead Manager(s):

ICICI Securities Limited

HSBC Securities & Capital Markets Pvt Ltd

BASIS OF ALLOTMENT:

The Equity Shares are proposed to be listed on the BSE Limited ("BSE") and the National

Stock Exchange of India Limited ("NSE") and the trading will commerce on or about

April 30, 2015.

The Issue is being made in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules,

1957, as amended ("SCRR") read with Regulation 41 of the SEBI Regulations, and through a

100% Book Budding Process wherein 50% of the Issue shall be allocated on a proportionate

basis to Qualified Institutional Buyers ("QIBs") ("QIB Portion"). The Company and the Selling

Shareholders may, in consultation with the GCBRLMs, allocate, up to 60% of the QIB Portion to

Anchor Investors at the Anchor Investor Issue Price on a discretionary basis in accordance with

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SEBI Regulations ("Anchor Investor Portion"). One-third of the Anchor Investor Portion shall

be reserved for allocation to domestic Mutual Funds only, subject to valid Bids being received

from domestic Mutual Funds at or above the Anchor Investor Issue Price. In the event of under-

subscription or non-allocation in the Anchor Investor Portion, the balance Equity Shares shall be

added to the remaining QIB Portion ("Net QIB Portion"). Further, 5% of the Net QIB Portion

shall be available for allocation on a proportionate basis to Mutual Funds only and the remainder

of the Net QIB Portion shall be available for allocation on a proportionate basis, to all QIBs,

including Mutual Funds, subject to valid Bids being received at or above the issue Price. The

unsubscribed portion in the Mutual Fund reservation will be available for allocation to QIBs.

Further, not less than 15% of the Issue shall be available for allocation on a proportionate basis

to Non Institutional Bidders and not less than 35% of the Issue shall be available for allocation

on a proportionate basis to Retail Individual Bidders, subject to valid Bids being received at or

above the Issue Price, all Bidders other than Anchor Investors may participate in this Issue

through an Application Supported by Blocked Amount ("ASBA") process by providing the

details of their respective bank accounts in which the corresponding Payment Amount will be

blocked by the SCSBs. QIBs (except Anchor Investors) and Non-Institutional Bidders are

mandatorily required to utilize the ASBA process to participate in the Issue.

The Issue received 550, 723 applications for Equity Shares (prior to technical rejections)

resulting in 52.82 times subscription. The details of the applications received in the Issue from

Retail Individual Bidders, Non-Institutional Bidders, QIBs excluding Anchor Investors and

Anchor Investors.

A. Allocation of Retail Individual Bidders (After technical rejections):

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The Basis of Allotment to the Retail Individual Bidder, who has bid at cut-off or at the Issue

Price of Rs 205 per Equity Share, was finalized in consultation with the Designated Stock

Exchange. This category has been subscribed to the extent of 7.75 times. The total number of

Equity Shares Allotted in Retail Individual Bidders category is 7,988,175 Equity Shares to

122,895 successful applicants.

B. Allocation to Non-Institutional Bidders (After technical rejections):

The Basis of Allotment to the Non-institutional Bidders, who have bid at the issue Price

of Rs 205 per Equity Share or above, was finalized in consultation with the Designated Stock

Exchange This category has been subscribed to the extent of 251.03 times, The total number

of Equity Shares allotted in this categories is 3,423,500 Equity Shares to 381 successful

applicants.

C. Allocation to QIBs (excluding Anchor Investors):

Allotment to QIBs, who have bid at the Issue Price of Rs.205 per Equity Share or above. has

been done on a proportionate basis in consolation with the Designated Stock Exchange. This

category has been subscribed to the extent of 60.08 time of Net QIB portion. As per the SEBI

Regulations, Mutual Funds were allotted 5% of the Equity Shares of Net QIB portion

available i.e. 228,234 Equity  Shares and other QIBs and unsatisfied demand of Mutual

Funds were allotted the remaining available Equity Shares i.e. 4,336.430 Equity Shares on a 

proportionate basis. The total number of Equity Shares allotted in the   QIB category is

4,564,664 Equity Shares, which were allotted to 138 successful Applicants.

D. Allocation to Anchor Investors:

The Company and Selling Shareholders have allotted 6,846,994 Equity Shares to 15 Anchor

Investors, in consultation with the BRLMs. In accordance with the SEBI Regulations, this

represents 59.99% of the QIB Portion.

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Issue Subscription Detail / Current Bidding Status:

VRL Logistics IPO oversubscribed 74 times:

The initial public offering of transport firm VRL Logistics has received overwhelming response

as the issue oversubscribed 74.26 times of the issue size on the final day on Friday. The public

offer received bids for 1,20,81,66,440 shares against the total issue size of 1, 62,69,006 shares,

supported by QIBs and HNIs. The qualified institutional buyers (QIBs) category was subscribed

58.22 times and the non-institutional investors’ portion received 250.86 times subscription.

Retail investors’ category got subscribed 7.92 times.

The qualified institutional buyers (QIBs) category was subscribed 58.22 times and the non-

institutional investors’ portion received 250.86 times subscription. Retail investors’ category got

subscribed 7.92 times. The public issue consisted of a fresh issue of equity shares aggregating up

to Rs 117 crore and an offer for sale of up to 1, 71, 16,000 equity shares by NSR-PE Mauritius

LLC and promoters Vijay Sankeshwar & Anand Sankeshwar. The price band was Rs 195-205

per share. The logistics company, on April 13, received Rs 140.36 crore by issuing 68.5 lakh

equity shares to 15 anchor investors like Franklin India Smaller Companies Fund, ICICI

Prudential, East spring Investments India Equity Fund, DSP Blackrock Small & Midcap Fund,

Birla Sun Life etc.

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Historical Financials

The total revenue increased at a CAGR of 20.44% from Rs. 7,146.13 million in fiscal 2010 to

Rs. 15,037.77 million in fiscal 2014, while profit after taxation increased at a CAGR of 18.75%

from Rs. 287.54 million in fiscal 2010 to Rs. 571.76 million in fiscal 2014. In fiscal 2012, 2013

and 2014, total revenue from operations was Rs. 11,303.83 million, Rs. 13,254.97 million and

Rs. 14,937.84 million, respectively. The return on net worth (RONW) in fiscal 2012, 2013 and

2014 was 40.96%, 15.79% and 18.65% respectively.

SUMMARY AND CONCLUSION

Logistics requirement for e-commerce will grow as exponentially as e-commerce.

Growth in transport system in India.

The major competitive strengths of VRL Logistics comprise largest fleet of transportation

vehicles, in-house vehicle body design facility and software technology capabilities.

VRL Logistics has a good track record and shown a consistent YoY growth rate with an

average of 20%.

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Profit margin for the current year has shown a sharp U-turn after reported low profits for

the past 2 years.

VRL Logistics reported EPS for the year ended March 31, 2014 of Rs.7.21 per share

while the Peer Company Gati has reported EPS of Rs.4.27 per share.

Large fleet of owned vehicles ensuring reliable, quality services: As of December 31,

2014, VRL’s goods transportation fleet included 3,546 owned vehicles, of which 1,166

vehicles were less than five years, 2,375 were debt free and 1,235 were fully depreciated.

As of December 31, 2014, it owned and operated 455 buses (including 53 staff buses), of

which 399 were less than five years, 87 were debt free and six were fully depreciated.

Dedicated in-house maintenance facilities and availability of spare parts and fuel

Diversified customer base and revenue sources.

Ability to recruit and retain experienced and qualified drivers: VRL’s ability to

recruit and retain experienced and qualified drivers is critical to its operations. It has

followed a strategy of recruiting drivers as full time employees with a defined salary

structure, associated benefits and attractive incentive schemes.

So above factors plays important role for VRL to attract investor.

Conclusion / Investment Strategy:

As of December 31, 2014, company’s goods transportation fleet included 3,546 owned

vehicles. Thus its own large fleet enables it to reduce our dependence on hired vehicles,

retain control of the value chain and service quality, and establish a reputation for reliable

and timely delivery of consignments. The variety of goods transportation vehicles in

company’s fleet also enables us to serve a diverse mix of consignments.

Over the years, VRL has established itself as one of the leading players in the domestic

freight transportation business across 20 states and six union territories in India with a

network of 436 self-owned branches and 423 franchise offices, which act as booking and

delivery points. VRL operates a hub and spoke model to support its large scale of

operations.

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The strong network and fleet of 2,573 vehicles have helped the company offer reliable

and timely logistics solutions to a diversified base of customers and emerge as a leading

logistics player for transportation of FMCG, pharmaceutical products, food, cloth and

general commodities.so these strong network helps the VRL to increase the company

growth.

Company recorded earnings of Rs.71.69 crore on a turnover of Rs.1,280 crore for the 9

months ended December 31, 2014. If we annualize the earnings then EPS comes around

Rs.11.17 and at an issue price of Rs.195-Rs.200 the PE ratio works out to be 18.

Further, with NAV of Rs.35.84 per share, the Price to Book Value translates to 5.50+

which looks aggressive.

The suggestion for retail investors would be to subscribe to VRL Logistics IPO. Although

investors may not see a material short-term gain or listing gains but for the long-term

period, the share price of VRL Logistics Limited may prove healthy.

This is also the first IPO in recent times where the subscription has crossed the 70 times

mark.

VRL Logistics' public issue received total bids of 1,20,76,05,620 as against the issue size

of 1,62,69,006 shares, reflecting a robust subscription of 74.23 times, data available at the

NSE

Moreover transport firm VRL Logistics' initial public offer (IPO) soared to stratospheric

heights today when the share sale got subscribed over 74 times on the last day of the

offer.

So considering above facts VRL can have healthy share vale in market for futures.

Thus it can be said that the IPO of VRL is a success to current market.

Reference:

Moneycontrol.com www.vrlgroup.in

simpleinterest.in www.chittorgarh.com

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www.sebi.gov.in financialexpress.com

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