The year gone by was the year of the pandemic and the financial performance of VRL Logistics in the first quarter of the fiscal witnessed massive operational cash losses and a lot of uncertainty existed with regard to recovering from it. The gradual recovery and eventual stunning volume growth recorded in the latter portion of the fiscal aptly demonstrated the inherent business model strength of the company
VRL Logistics Limited is a well-established brand in the country when it comes to surface transportation and an industry leader in the parcel transportation space. With a track record of over four decades, VRL Logistics has mammoth size and scale of operations and operates on a pan-India basis with one of the largest distribution networks in India. The company is the only ‘owned asset’ organised player in ‘less than truck load’ (LTL) logistics business in India. As on March 31, 2021, the company operated with a total of 4,575 vehicles with a carrying capacity of 68,107 tonnes and several owned premises, including branches, offices and transhipment hubs.
The company has a well-established wide network of branches and franchisees and its own fleet of commercial vehicles with dedicated in-house vehicle body designing and vehicle maintenance facilities to cater to parcel transportation. It presently operates across 22 states and four Union Territories in India and its reach is unmatched for the offering of LTL goods’ transportation services. VRL Logistics is also one of the largest fleet owners of commercial vehicles in the country and the same enables it to set unparalleled standards in the movement of LTL cargo in India in terms of service levels and safety of consignments.
A Unique Strategy
The policy at VRL Logistics is to own its vehicles for offering LTL services as also own significant infrastructure facilities comprising warehouses and maintenance facilities. It also has a dedicated in-house IT set-up which has rendered a lot of control, cost savings and business flexibility over the years. The entire IT infrastructure of the company is operated internally and the in-house developed ERP enables the company to seamlessly operate on an online real-time basis across all its business verticals as also integration with franchisees and select customers.
VRL Logistics also has built up capability to maintain its owned vehicle fleet internally and the cost savings arising out of economies of scale by way of tie-ups with fuel suppliers, vehicle manufacturers for supply of spare parts, tyres etc., as well as ongoing in-house research and development in this domain have enabled the company to utilise its vehicles for a significantly longer term vis-a-vis the industry as also at significantly lesser maintenance costs. The company benefits from in-house research and development with the capability to implement its findings and experiment with newer products and technologies on its owned vehicles.
Several of its key findings have today been accepted and implemented even by vehicle manufacturers. In combination with own vehicle body designing facility and also with combination of multiple types of commodities handling such as heavy and bulk consignments inside goods carriages, the goods carriages can be utilised at higher capacity as compared to the earlier periods. Overall, the in-house maintenance facility helps the company to better utilise its fleet than the competition as the vehicles owned by VRL Logistics can be used for a longer period of time as compared to outside vehicles. Also up to 55% of the goods transportation vehicles are fully depreciated, ensuring vehicle fleet availability with no additional depreciation costs. And about 93% of the goods transportation fleet is debt-free with no associated finance costs.
Facing the Challenges
VRL Logistics has a very well-diversified customer base. During FY 2020-21, the company’s largest customer and the top 10 customers put together contributed only 1% and 3% of the revenues of the goods transport business respectively and the lowest trade receivables in the industry. This has ensured that the company has no dependencies on any customers or product categories. Similarly, there are no geographical or product-related dependencies for the business which better insulates it compared to other players in this industry.
The year gone by was the year of the pandemic and the financial performance in the first quarter of the fiscal witnessed massive operational cash losses and a lot of uncertainty existed with regard to recovering from it. The gradual recovery and eventual stunning volume growth recorded in the latter portion of the fiscal aptly demonstrated the inherent business model strength of the company as operationally the company was ever ready to handle the business coming its way. Its excellent financial standing ensured that the company was able to bear the brunt and recover very fast in the face of adversity.
Financial Performance
Despite recording a loss before tax of over Rs 8,380.77 lakhs in Q1, VRL Logistics closed the financial year with a profit of Rs 4,506.79 lakhs. Considering the net loss of Rs 6,271.49 lakhs recorded in Q1, the latter three quarters recorded net profit to the tune of Rs 10,778.28 lakhs, which was more than the full year’s profit of the preceding financial year. During the year under consideration, the company achieved gross revenue of Rs 177,578.73 lakhs as against Rs 212,885.65 lakhs for the earlier fiscal, depicting a decline of 16.58 %.The profit before tax (PBT) was Rs 6,374.07 lakhs as against profit before tax of Rs 10,431.68 lakhs in the previous year, depicting a decline of 38.90%.
The same was owing to the pandemic affecting the company’s business across the country. While the company’s goods transport division achieved a turnover of Rs 159,275 lakhs, registering a decline of 7.61 % as compared to the previous year, the bus operations division achieved a turnover of Rs 13,033.56 lakhs, registering a decline of 62.08%. The net cash flow from operation increased from Rs 25,728.46 lakhs to Rs 27,111.23 lakhs during this year. The highlight was that only the goods transportation segment, the core business of the company, recorded profits during the current year.
To achieve this, the management of the company took various initiatives, especially involving the top management travelling across the country, interacting regularly with the ground level staff, empowering and encouraging the people on the ground to take timely decisions and focus on their local markets to increase the business volumes by adding more number of customers. Periodic review of freight rates based on the ever-changing ground realities was continuously undertaken along with effective cost control measures related to certain fixed costs such as employee cost, rent expenses, vehicle taxes, etc.
The company keenly monitored the continuous increase in the fuel rates which is the highest cost for its business. The diesel rate during the year increased by around Rs 21 per litre and it has taken various steps to control the fuel cost by increasing the quantity of biodiesel (23.3% of total quantity in FY21) which is much cost-effective compared to the normal fuel and increasing the diesel purchase quantity directly from refineries. The company reviewed the statutory provisions of the Motor Vehicle Act during the year and categorised certain vehicles as ‘non-use’ vehicles during the year to save on associated vehicle taxes. This helped reduce the taxes on vehicles which were not in use during the lockdown period.
A conscious branch profitability study was initiated and measures were taken to open 21 new branches in FY21 and closing 52 non-performing branches. This not only helped in saving costs but also resulted in consolidation of operations without affecting the goods transport business turnover. The latter portion of the financial year (H2FY21) of the financial year was a great one for the company in terms of operational volumes in the goods transportation segment. It focused more on increasing kilometres operated by its own goods vehicles by doing optimal driver–vehicle allocation, resulting in higher kilometres being covered by owned vehicles. H2FY21 saw operations normalising and the company witnessed 19% growth in revenue and 79% growth in EBITDA as compared to the second half of the previous year (H2FY20).
Opportunities
The financial year 2021-22 is also expected to present disruptions on the business volume front. Lockdowns imposed in various states has affected the brick and mortar industries, leading to lower demand, conservative consumer behaviour as also restrictions in the movement of men and materials which has adversely impacted everyone in the surface logistics industry, especially on the B2B front. Freight volumes are, however, increasing and are bound to surpass the pre-pandemic days in the near short term. This is so because being organised enables VRL Logistics to better handle the ongoing scenario as also many of the unorganised smaller operators have already shut shop as they were unable to cope up with the financial stress the pandemic presented.
Given that the industry is dominated by these unorganised players and they are bearing the financial brunt of the pandemic, organised players like VRL Logistics stands to benefit. The present day stabilisation of the GST regime has necessitated several documentation requirements to which organised players are better suited. Be it e-way bill compliance and providing necessary information to the customers for their compliances, etc., VRL Logistics also has successfully obtained the requisite approvals from the respective RTOs and is now well-poised to reap benefits under the recent revision in safe axle weights for goods transport vehicles by the Transport Division of Ministry of Road Transport and Highways which permits the carrying of higher weight on a goods transport vehicle.
As of date, majority of the high-capacity tonnage vehicles have been approved and these vehicles will be effectively used to carry the additional load as compared to the earlier periods. The same is expected to benefit the company in the coming days. Though this was implemented more than a year ago, the company could not fully cash in on the advantages presented to it owing to the restricted movement of vehicles during the pandemic. The vehicle scrappage policy is a government-initiated programme to replace old vehicles from Indian roads. According to the new policy, commercial vehicles greater than 15 years and passenger vehicles of greater than 20 years will have to be mandatorily scrapped if they do not pass the fitness and emission tests from April 1, 2022. The imminent implementation of the scrappage policy is being tentatively viewed by the road transport industry as there would be a very significant reduction in the number of vehicles plying on the roads.
This would be a blessing in disguise. The eventual situation of higher demand for vehicles would work favourably and coupled with the inevitable freight rate hike caused by such policy implementation would lead to higher margins for the company. Also, given the internal expertise the company has on the vehicle maintenance front, all the useful spare parts from the vehicles getting scrapped would be available for usage apart from the one-time salvage income expected. It is pertinent to take note that any such scrappage would also not entail any hit on its profitability as the vehicles are fully depreciated. Though around 800+ vehicles from the existing fleet would be required to be scrapped, in terms of capacity these vehicles account for hardly 12% of its fleet capacity.
Outlook
In the aftermath of the pandemic, financially strong and organised players stand to benefit at the expense of smaller and marginal players who dominate the industry. This was seen last year as well. Also, VRL Logistics expects better utilisation and revenue realisation per vehicle for its goods transport vehicles in view of the recent revision in safe axle weights for goods transport vehicles which permits the carrying of higher weight on a goods transport vehicle, thereby increasing its payload. On the passenger bus operations front, the company expects to benefit from the recently introduced all-India permit for private buses which would lead to a significant reduction in the operational cost for that segment.
The inherent strength in the business model ensures that the company is not dependent on any particular customer or industry for its revenues. In these difficult times, the available drivers and vehicles are being selectively deployed for full truck loads and parcels depending on return load and other ground level position as the situation warrants. VRL Logistics is transacting freight business coming its way and the entire team has existing customers as also potential customers for getting business. It is doing an internal review and is conducting focused state-region level meetings to increase freight density in the local pockets for growth.