VRL Logistics Limited (VRLLOG.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the VRL Logistics Limited Q1 FY '26 Earnings Conference Call hosted by PhillipCapital Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital, for opening remarks. Thank you, and over to you, sir.

Thank you, [ Nidhi ]. Good morning, and a very warm welcome to everyone. On behalf of PhillipCapital, I'm pleased to welcome you all. We have with us Mr. Sunil Nalavadi, Chief Financial Officer at VRL Logistics, [ he ] will begin the call with the opening remarks from the management followed by interactive question-and-answer session. Over to you, sir.

Yes. Thank you, Mr. Vikram. Good morning to everyone. I warmly welcome you all to the quarter 1 FY '26 earning conference call of VRL Logistics Limited. I'm pleased to share that this year marks a significant milestone, the 10th anniversary of our listing on the stock exchanges. VRL Logistics continues to demonstrate [indiscernible] and strategic clarity as we navigate a [ period ] marked by contract restructuring and broader industry recalibration. During the quarter, our total income registered a marginal growth of 1% on year-on-year basis and our EBITDA margin remained robust at around 21%, underscoring the strength and discipline of our operational model. Before diving into the financials [indiscernible], I would like to take a moment to provide some industry context. The Indian logistics sector is currently undergoing a structural transformation fueled by policy-driven reform such as National Logistics Policy and Unified Logistics Interface Platform. These initiatives are streamlining operations, improving digital integration and enhancing transparency across the supply chain. Now, coming to our quarterly performance. Total income grew by around 1% year-on-year basis, largely supported by the price rationalization initiative implemented in quarter 2 and quarter 4 of last financial year. These were aimed at ensuring sustainable margins and led us to take a conscious decisions to exit from low-margin freight contracts. While this strategy has resulted in short-term decline in volumes, it aligns with our long-term vision of remaining one of the most profitable players in the industry. As a result, volumes declined by around 12% year-on-year basis. However, we view this decline as temporary, and we have already initiated multiple steps to regain momentum without compromising profitability. We believe volume should normalize again from quarter 3 onwards, led by positive macro tailwinds, including a strong festive demand cycle and favorable monsoon conditions, that should stimulate freight movement in the coming quarters. Apart from the industry tailwinds, we are taking several proactive steps to improve volumes. We have a customer base of 9,00,000 GST accounts, GST registered customers whom we serve and this is the highest in the industry. To sustain our leadership position, we have intensified marketing efforts across both existing and new branches, with a clear focus on securing high-quality, profitable contracts. With a wider pan-India network comprising 1,241 branches and 50 transshipment hubs, we are actively expanding into similar towns and local markets to capture incremental growth opportunity. As part of this strategic expansion, we recently inaugurated a new branch in Meghalaya and plan to deepen our presence across the Northeastern region. To further reinforce our competitive position, we continue to leverage the strength of our extensive network and key operational advantage, having our drivers on the company's payroll. In an environment where the industry is grappling with the shortage of key drivers, this capability positioning VRL Logistics favorably to capture additional market share and ensure consistent, reliable and service delivery. Our ability to retain talent is also reflected in the lowest attrition rate in the industry. Complementing our strong human capital is our continued investment in technology, [ where we have ] built robust in-house digital infrastructure to enhance efficiency and deliver a superior customer experience. Our proprietary ERP system and operations monitoring tools provide real-time visibility into consignment tracking, vehicle movement and fuel consumption. GPS-based tracking and advanced consignment management systems enable timely deliveries, while tools such as capacity utilization tracking and real-time reporting optimize route planning and vehicle loading. We have also implemented several automation measures including e-way bill and e-invoice generation as well as OTP-based vehicle unlocking, which strengthen compliance and security. Centralized CCTV monitoring, private cloud hosting and customized alert systems further enhance transparency, improve response time and reinforce customer confidence. One of our core operational strength remain our ability to consistently maintain 100% hub-to-hub efficiency across our network. This operational excellence allows us to reduce turnaround time, optimize vehicle utilization and ensure timely deliveries across our pan-India presence. We believe these trends equip us well to navigate near-term challenges and capitalize on long-term growth opportunity. Moving on to the cost front. We continue to enforce rigorous control measures across all major expenses. Fuel is our largest cost component, saw a significant improvement in internal procurement rising from 33% in quarter 1 FY '25 to 41.5% in Q1 FY '26. This shift, along with a reduction in fuel procurement cost per liter from INR 86 to INR 83 per liter, helped us to bring overall fuel cost down to 25% for the quarter from almost 29% in the same period last year as a percentage to the total income. Our ongoing route optimization efforts further minimizes loading and unloading stocks, enabling better utilization of our owned vehicles and reducing dependency on hired vehicles and drivers, particularly for shorter routes. As a result, lorry and services declined from 7% to 4% of total income. Other expenses, including administrative charges, stood at approximately 2.2% of the total income in Q1 FY '26, up from 1.4% in Q1 FY '25 mainly due to some higher legal and professional fees and also loss on the sale of vehicles to the extent of around INR 350 crores. Employee cost around INR 3,50,00,000 crores, and employee cost remained stable at around 18% of the total income. These cost efficiency initiatives collectively enabled us to sustain strong EBITDA performance with margins sustaining above 20% and standing at around 21% for the quarter. During Q1 '26, we added around 18 new branches to our existing network and closed around 30 branches. These closures were part of deliberate strategy. Some were being [ underperform ] locations, while others were consolidated to make way for larger, more operationally efficient branches within the same area. As of Q1 FY '26, our total fleet stood at around 5,949 vehicles compared to 6,177 in the same period last year. This slight reduction reflects our ongoing efforts to optimize fleet utilization and improve efficiency. Our net profit for the quarter stood at around INR 50 crores compared to INR 13 crores in the same quarter last year. This translated to a PAT margin of around nearly 7% for Q1 FY '26. We are pleased with the direction in which our margin profile is evolving, and we remain committed to further strengthening our bottom line. In terms of key updates, our CapEx for the current quarter stood at around INR 15 crores. Currently, we are slower on the CapEx considering the sufficient capacity of the vehicles available. However, depending on evolving market demands, whenever we find good opportunities, we may look to deploy additional funds for fleet enhancement and for investment into transshipment hubs. Importantly, we are well-positioned to fund any such requirements through internal accruals, while continuing to maintain healthy cash flows. And another point I would like to highlight is the increase in employee cost expectation in quarter 2. This is a result of internal salary increments undertaken to recognize and reward the contributions of our employees in driving business growth. While this will lead to a slight uptick in cost during the quarter, we see it is an investment in our people and in the long-term growth of the organization. Looking ahead, we are focused on diversifying our revenue base across industries, enforcing strong discipline on receivable days and expanding into newer untapped markets. With a supportive external environment, including a good monsoon and early festival season, we are optimistic about an uptick in freight volumes in the coming quarters. This concludes my opening remarks. We now open the floor for questions and look forward to an engaging discussion. Thank you.

[Operator Instructions] The first question is from the line of Alok Deora from Motilal Oswal Financial Services Limited.

So just had a few questions. First is on the volume which has declined by 13% or so primarily because of your restructuring in terms of letting go low-cost, low-priced customer. So this restructuring is now completed or is it still ongoing? And how could the volume -- how would the volume shape up in the quarter 2?

Yes, it's completely done. And again, we are instructing to the new customers and even to our marketing executives that we have to maintain our freight rate strategy even going forward. So there is no compromise on that factor. And in terms of volume, yes, it's around 12% to 13% decline in the Q1 because of these strategies what we adopted in the last year. Now we are expecting at least around 8% to 9% for the year-on-year decline will be there. But in the quarter 3, because of festival seasons and all, we are expecting that the tonnage will be matched to the extent of last year turnover what we did. And for quarter 4, definitely, there will be a growth. This is what actually we are expecting as of today.

Got it. Got it. And sir, in terms of realization which we got around 17% in this quarter Y-o-Y, now that will dip from 2Q, right, because your price hike benefit which you had taken, that is all -- that was at end of 1Q. So now in 2Q, the realization improvement could be more like a 8%, 9% kind of a number, right?

Yes, yes. The realization what we did in Q1 will be maintained. It's around INR 7,800 per ton. So around that the realization will be maintained for throughout the year.

Got it. And just on the margins. So, margins have come off a little bit if you look at the last quarter. And also, it's got to do with increase in the other expense, which rose because of -- you mentioned about some professional fees and all. So that would be more like a onetime increase in the cost, right? So what could be the margins like? And also you have mentioned about the employee cost increasing by -- I mean, the impact of 2%, 3% on the revenue for this financial year. So if you could just throw some color on these 2 aspects and the overall implication on the margins in the remaining 3 quarters?

Yes. With respect to administrative expenses, that professional and legal fees, the additional of around INR 2.5 crores to INR 3 crores will continue for the next quarter or so. But the loss what we accounted on account of scrap of vehicle, it is around INR 3,50,00,000. It is a onetime expense. So that will not be any repetitive. But what will happen with scrappage of vehicle? What we did in the quarter 1, it may [ stretch ] some increase in the sale of scrap materials in the quarter 2, but it is not so significant to highlight here. And second thing is about the margin side. Yes, we have carried out the employees increment in the August month. Now this will cost us around 2% to 3% to the revenue. So based on that for the Q -- quarter 2 EBITDA margins, so we are expecting that it will be -- the impact will be around 2%, whereas in quarter 3 onwards, the impact will be around 3%. That's what the expectation is.

Okay. So sir, the new normalized margin would be more like a 18%, 19% range?

Yes. Quarter 2 will be around 19% or so, then further it will be around 18% for the remaining quarters.

Got it. Okay. Just last question. So any more price hike possible in the later part of the year? And how we see this demand also shaping up? Because in your specific case, the volumes would be very volatile in terms of it won't be in sync with the industry because of your restructuring which is going on. So for the full year and next year, how do we see things moving?

No, unless the major cost changes in the going forward, we are not going to change any freight rates. It all depends on the cost, how the movement of the cost will be.

The next question is from the line of Mukesh Saraf from Avendus Spark.

My first question is on the volumes again. While -- so last 2 quarters, we are seeing the decline -- double-digit decline in volumes. So the question is that these customers who we have let go, they have gone back to the unorganized market at lower pricing? How should we -- I mean, are they expected to return back? Or we'll have to kind of mine new customers here?

No, currently, what's happening with respect to the corporates, wherever we declined their contracts or discontinued their businesses, against some of the corporates, actually, they are going to organized as well as unorganized players. And some of the corporates, actually, they faced their operational difficulties about distribution of their products across India. And some of the customers have came back with our price increase and again, continuing the business with us. And not only that, actually, we are -- going forward we are educating our marketing team and pushing to attract new customers. And we gathered a lot of many new customers also with our new tracking terms. That's also we acknowledge from the market. And basically, our highlight is about our service. The claim ratio is very low, and we are maintaining the turnaround time, the safety of the commodity and even the network. These are the key highlights. Actually, some of the customers, they are not finding alternative solutions and they are coming back to us.

Okay. Is there a case where you are kind of getting into the express PTL zone in terms of pricing? Because we see that a lot of Express players are pricing at, say, around INR 10, INR 11 per kg. We are now at around INR 8 per kg. So because of our pricing strategy now, are we somewhere in the middle from the earlier PTL business that we did versus now the express PTL guys? So are we kind of in the middle there somewhere, and hence, it's difficult for us to get some volumes?

So basically, see, even I explained during the earlier calls, so there is no much difference between the express cargo and the service what we are providing. When we approach to the customers, if it is a door pickup, door delivery service, then it is nothing but similar to that. [indiscernible] Yes. The realization comparison what you are doing with express cargo versus us is, basically, we are having the mix of short routes. See, especially in the state of Karnataka and Southern India, our routes are very small and per kg realizations are very less in those routes because the distance itself is very low.

Right. Right.

It is also [indiscernible].

Okay. Okay. So our pricing is more or less equal to Express guys now, sir, if I say equal route -- a lead distance, if it's equal right now? Or is it still lower than that?

When it comes to the door pickup, door delivery, it is more or less similar to the average.

Okay. And what proportion of our revenue now is door-to-door or volume...

See, door-to-door -- around 38% to 40% of our revenue is door-to-door.

Okay. And what was this, say, last year, sir? I thought it was much lower earlier.

Yes. Earlier, it was around 25%, 28%. Now around 10%, 12% has been increased.

Understood. Understood. And lastly, on the fleet, I mean, I'm seeing that the fleet has gone down in the last 3 months in terms of just the number of vehicles. We are now 5,950-odd. We used to be 6,100-plus. And even within that, we are seeing that the 20 to 30 tons seem to have dropped a bit more. Is there anything we need to read into this as to why the higher tonnage has dropped a bit more? Are we not replacing the older, higher tonnage vehicles with newer ones?

No. Basically, see, as tonnage is now little bit impacted about the pricing terms what we decided, because of that, wherever there are major expenses on the maintenance of the vehicles, so we are scrapping those vehicles. And whenever the tonnage will pick up, again, we will go for a fresh vehicle, the newer vehicles. That's what the strategy is.

The next question is from the line of Achal Lohade from Nuvama Institutional Equities.

Sir, if you could help us with respect to what was the tonnage which was let go in 4Q? And how much of that has come back, like you mentioned, part of that has come back? How much would that be?

Yes. In Q4, now, out of overall tonnage -- see, what happened, I'll tell you. Initially, in the month of January also we informed to the customers that we are unable to go along with the tonnage, whatever the rate [ terms ]. And subsequently, some players, all corporates and other claims what they did, actually, they have taken some time. And in the mid of February also actually some of the contracts have been discontinued, and that has been continued in the March. Now on the overall terms, if you see, see, almost around some 5% to 6% of the tonnage actually we got it back compared to what we lost in the Q4.

Sir, broadly, I mean, if I were to look at 4Q, we had 1 million ton, right?

See, for example, the -- now in the quarter 1, we did around 9,30,000 tons, which is lower by almost 12% as compared to the last year. And out of this 9,30,000 tons, you can say at least around 30,000 to 35,000 tons, again, it came back from the lost customers in Q4.

And how much was total lost? Was that 2,00,000? Was that 100,000? Or was that 3,00,000 tons?

Yes. No. Monthly, if you see, we used to carry nearly around 3,60,000 tons in Q4. That has been came down to around 3,20,000 tons. And some of the addition is on account of this -- the new customers what we added and the decline is also because of some of the lost customers. Out of the lost customers, around 3% to 4% has come back in the tonnage.

Right. So what you are saying is that on a monthly basis, we would have lost about 1,00,000 tons and of that 30,000, 35,000 has come back. Have I understood right?

Yes.

Is that number right, sir? Like 1,00,000 was the lost volume? Like...

See, we used to do around 3,60,000 tons -- 3,60,000 tons. Okay? See, just I'll tell you in last year January, we did 3,56,000; February, 3,15,000; and March, 3,34,000. Now compared to January to February, if you see, we lost almost 30,000 tons, okay? In the same...

You are talking about 2025, right? Yes. Okay.

Yes. 2025, January, February, March, the Q4 what you are referring.

40,000 you had lost, okay?

Yes. And when it comes to the April, we did 3,13,000, 3,18,000 and 3,02,000 tons in the June month. So in this 3,13,000 to 3,20,000 tons, whatever we did, out of this, some of the customers what we lost in January, February, they came back and contributed around, say, 30,000 to -- 25,000 to 30,000 tons extra.

On a monthly basis. Is that sir?

Monthly. Yes.

So I mean, theoretically, then -- what I'm trying to -- sir, what I'm trying to say is, a, X of the lost or let go cargo, what is the underlying growth? Is there a growth? Or is there a decline? Or is that flat number?

Yes. Yes, lost customer, it is a growth. Otherwise --

What is that number, sir?2

yes, at least around 4% to 5% growth in the tonnage. See, for example, if the lost customer -- if there is no growth in the -- from the new customers, our tonnage decline would have been in the range of around 15%, 16% instead of 13%.

Okay. Understood. The second question I had was in terms of the price increase, after you taking the price increase, what is the price difference between you and the second player, sir? Is that very large? Is that very small? Have they also responded with a price increase?

Yes. If you see, many of the organized players, some of the organized players have been increased the rates even from last year Q3 and Q4. And from the unorganized people, actually, we cannot track the price exactly. The reason is actually depending on the customer, depending on the arrangement with the customer, actually, they go on changing the pricing.

Understood. And what proportion of our customers' wallet share do we typically have? Like is it 40%, 50%? Is it 5%, 10%? Or is it 70%, 80%? I'm talking about the large customers. The...

Large customers contribute around 15% of the total tonnage from -- with whom we are having a contract -- monthly contract. Around 15% of the tonnage is coming from the large corporates.

And of their cargo, how much would our be -- our share would be?

Of their individual customers you are saying?

Yes. Yes, yes. On an average, would that be 40%, 50%? Or would that be still 5%, 10%? I'm just trying to...

It all depends again, actually. See, it all depends. See, if it is the south, west and north, actually, we are having a good share of their business. But since our presence is not up to the mark in eastern and northeastern areas, there actually, they give even 5%, 10% share to us. It all depends on their network and where actually they want to distribute the goods.

Understood. And if you could also highlight what is the average lead distance we had in 4Q and 1Q FY '25 and 1Q FY '26, sir? Would you have that?

See, lead distance, we do not have that information. Basically, we all concentrate on hub-and-spoke model. Each hub of the movement and other things. Normally, we don't go by the lead distance.

But the pricing would be a function of the distance?

No. Pricing, again, it is between the hub and branches -- up to hub and branches. [indiscernible]

Yes. Okay.

Our price structure is in such a way that we are having a 50 transshipment hub. First, our price will be between the hubs. So for example, if it is a Bangalore to Delhi, then Bangalore to hub Delhi, what is the price. Then all against subsequent branches, there will be additional rates.

And that bifurcation is given to the customer as well or this is only for you?

No, no, no. We -- it is all internal.

Right. So I mean, theoretically, sir, what I'm trying to impress upon is that if it is Bangalore, Chennai, the lead distance is low, the pricing -- hub-to-hub price will -- cost will be lower, price will be lower. If it is Bangalore to Delhi, it will be larger. So I'm seeing from that perspective, if you are -- if -- so there are 2 parts actually. One is the -- I'm just trying to see in terms of the pricing difference between you and the express. And, b, is, if there is a case of increase in the lead distance and hence, the realization and hence, the profitability further?

That possibility is there because of the expansion in the network what we are doing. See, basically, earlier, our most of the cargo movement was in the south, then gradually extended to west and north. So automatically, the lead distance has been increased. Now since we are expanding our network in northeast and eastern part, again, the lead distance will increase. But in terms of margin, I'm telling you, it'll be very similar as compared to the lower -- the short distance as well as the long distance.

[indiscernible]