VRL Logistics Q4 Review: Profitability Throws Up Surprises, But At Cost Of Volumes, Says HSBC

HSBC Global Research has released its latest review on VRL Logistics, highlighting a strong beat on profitability driven by price hikes and the discontinuation of low-margin customers, albeit at the cost of volume growth.

VRL Logistics' Q4 profit after tax grew by 245% year-on-year, significantly beating Bloomberg consensus expectations by 53%. Despite this, revenue growth was relatively soft at 5% year-on-year, driven entirely by an 18% improvement in realisations, while volumes fell by 11%. The decline in volumes was attributed to the discontinuation of certain low-margin businesses.

Higher realisations, coupled with lower fuel costs and reduced lorry hire charges, drove a 9.4 percentage point Ebitda margin expansion to 23.1%. Absolute Ebitda grew by 77% year-over-year, the brokerage noted.

During the earnings call, management highlighted several key factors contributing to the robust Ebitda margin performance. "The discontinuation of low-margin businesses, price hikes taken during Q2 FY25, operating efficiency improvements led by the bulk purchase of fuel, route optimisation, and higher vehicle efficiency all aided the robust Ebitda margin performance," management stated, as per HSBC.

The brokerage also noted that the management indicated decline in volume growth due to the discontinuation of low-margin businesses should be transient and that growth is expected to pick up in Q3 FY26. "We expect growth to pick up in Q3 FY26 and target to maintain realisation at current levels even in a rising cost environment," management added.

Management plans to drive volume growth through expansion of the branch network and increasing wallet share in existing regions by focusing on region-specific products, HSBC further added.

HSBC has increased its target price to Rs 670 from Rs 600, reflecting higher earnings forecasts led by improved realisations and operating leverage.