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

Ladies and gentlemen, good morning, and welcome to the VRL Logistics Q2 and FY '26 Earnings Conference Call hosted by ICICI Securities Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee 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. Mohit Lohia from ICICI Securities for the opening remarks. Thank you, and over to you, sir.

Yes. Hi. Good morning, everyone. Thank you for joining us today for Q2 and H1 FY '26 earnings call of VRL Logistics Limited. First of all, I would like to thank management for providing us the opportunity to host this call. From management, we have Mr. Sunil Nalavadi, CFO of the company. So without further delay, I would now hand over the call to Mr. Nalavadi for the opening remarks. Thank you, and over to you, sir.

Thank you, Mr. Mohit. Good morning to everyone, and a warm welcome to VRL Logistics Limited Quarter 2 and First Half Year of FY '26 Earnings Conference Call. Just I want to highlight the quarterly performance to start with. During the quarter ended September '25, VRL Logistics demonstrated resilience and disciplined execution in an evolving market environment. The period was marked by changes in GST regulations and the strategic rationalization of low-margin contracts. Despite these factors, our performance remained stable with total income of INR 804 crores, broadly flat compared to year-on-year basis. The tonnage declined by around 11% year-on-year basis, primarily due to the deliberate exit from low-margin business, but it's encouraging to note that volume showed a 4% sequential recovery, indicating improving demand and the return of some previously lost customers. Realization per tonne stood at around INR 8,079 per tonne compared to INR 7,852 per ton in Q1 FY '26 and INR 7,241 as it was in quarter 2 of FY '25, a growth of 2.9% quarter-on-quarter and 11.6% year-on-year basis. The quarter witnessed a short-term demand modernization following GST-related policy changes as customers across sectors, particularly in consumer durables, electronic products, agriculture products, footwear and ready-made garment, et cetera, adopted a cautious stance. This temporarily impacted volumes, but we view this as a transitory phase. We expect volume recovery to strengthen in the coming quarters, supported by better traction across key customer segments. Our marketing team continuously to focusing on acquiring high-quality profitable contracts and expanding in underpenetrated regions. Our pan-India network remains one of our biggest strengths, comprising 1,243 branches and 50 transshipment hubs. During the quarter, we added around 9 branches and closed 7 and net addition of around 2 branches, particularly in Eastern India as a part of our strategy to deepen regional presence and strengthen last mile connectivity. The EBITDA for the quarter stood at INR 158 crores, up from INR 136 crores in quarter 2 FY '25, a 17% year-on-year growth, supported by cost optimization and improvement in realizations. Our fuel cost, the largest expenditure component reduced from 28.6% to 25.6% of total income in quarter 2 of FY '26, driven by bulk procurement from refineries, which increased to 41% from 35% in quarter 2 FY '25 and improved sourcing. LRS status also declined from 5.7% to 4.4% to total income following better fleet utilization and ongoing route optimization initiatives. Our own fleet stood at around 5,782 vehicles as of September 2025 compared to 6,158 last year, reflecting the rationalization of older and less efficient vehicles to optimize maintenance and utilization. Employee cost increased to 18.3% of total income versus 16.9% in the last year, primarily due to salary revision implemented in RS to revive our workforce. We consider this as a strategic investment in our people and future growth. The net profit for the quarter stood at INR 50 crores as compared to INR 36 crores with a growth of around 39% year-on-year basis. FY '26, the total income grew by 1% year-on-year basis, while EBITDA stood at around INR 316 crores versus INR 237 crores in H1 '25, translating into an EBITDA margin of around 20%. And the PAT for the first half nearly doubled to INR 100 crores from INR 49 crores with a margin improving from 3% to 6.4%. The Less-Than-Truckload segment continues to be our core business, contributing about 89% of our total revenues, while the balance came from the FTL segment. CapEx for first half year ended September '25 stood at around INR 43 crores, of which INR 23 crores was deployed towards covering leased branches or hubs into owned facilities across key locations such as Ernakulam, Salem and Tumkuru Industrial area in Karnataka. And the CapEx for the quarter stood at INR 29 crores. We continue to make selective investment in high potential locations to enhance company-owned branches or hubs which will be predominantly funded through internal accruals supported by our strong balance sheet and healthy cash flows. In first half year of FY '26, the cash flow from operations improved significantly to INR 334 crores from INR 217 crores, driven by higher operating margins and tighter working capital discipline. Receivable days remain at around 12 days among the lowest in the Indian logistics industry. And the net debt of the company stands at around INR 304 crores as compared to INR 396 crores at the end of March 2025. Due to improvement in the margin, our company return on capital employed has been reached to 18% as against 14% for FY '25. Looking ahead, we expect freight volumes to improve in H2 FY '26, supported by new customer additions, incremental volumes from our large existing customer base, normalization of GST-related disruptions and enhanced marketing initiatives across key hubs and deeper penetration into newer markets. Our focus remains on operational efficiency, profitable growth and delivering sustained value to our shareholders. Now I conclude my initial remarks with this. Now I request participants to ask any questions to response at my end. Thank you.

First question comes from the line of Alok Deora from Motilal Oswal.

Just a couple of questions. First is on the volume. So volumes, how has been the trend because of this change in the GST rates? Have you seen any sharp change in the volume in the end of September and also in part of -- also during October? So just first question was on that.

Yes. Basically, see, the government has announced during the August 15 about indicative changes in the GST. And because of that reason, some of the products, whatever 12%, they have straight away with 12% and 28% to be removed. So those category products have been impacted from August 15 to September 22 until the announcement has clarity from the government. Subsequently, yes, demand of these products have been improved. And since we are accounting the revenue based on the delivery basis, most of these revenues have not been accounted in September because of at least around 4 to 5 days transit time from the rate of booking. So some of these revenues have been accounted in the month of October. And the additional volumes have been contributed in the month of October on account of this.

Sure. So have you seen any sustained improvement or it was more -- it is more like just those 20 days of -- before the cut, the volumes were soft and after the cut the volumes have just kind of compensated, we were compensated…

No, we have sustained the growth, especially for us is concerned. The reason is we are operating at a 5% GST, which is lowest applicable GST rate for the transportation of goods. And since most of the commodities have been shifted from 12% to 5% or 0% or in some cases 18% to 5% or 0%. So those commodities, always they focus how to reduce the cost or how to reduce the input tax credit. So since we are one of the category in the 5% rate of GST, definitely we are expecting good volumes from this category of commodities.

Got it. So sir, in 2Q, we saw this 11% decline. How do we see the trend ahead now? Because I think even in 3Q, we could because we have let go of low-margin customers. So that's why the volumes have been coming down Y-o-Y. So 3Q, again, we'll see a minor decline or 3Q could see, be the turnaround in terms of the volume growth coming back?

Yes. Again, in compared to Q1 and Q2, how we improved 4%, but we are expecting from Q2 to Q3, again, there will be improvement in the range of at least around 5% plus, 5% to 6% what we are expecting. And in Q4, there will be a growth in tonnage by at least around 7% to 8%. That's what is the rough estimate. And on a full year basis, the overall there will be a reduction of around 4% to 5% in tonnage. But if the same realizations have been maintained, overall the revenue growth for the full year it will be around 4%.

Got it. Just last question. Margins, we have taken this employee wage hike and stuff. So margins have been around -- core EBITDA margin has been around 19%. So is that number sustainable ahead? Or we could see some moderation there?

Yes, definitely, it is sustainable. And employee cost, as we mentioned, actually, we have given increments from the month of August. There will be 1 month additional cost will be there in the next quarter. And we are expecting that because of increase in the tonnage, we are expecting that we will be maintaining the EBITDA margin in the range of around 19%.

Our next question comes from the line of Mukesh Saraf from Avendus Spark.

Just continuing on the tonnage growth side of the business. I mean, when I look at this quarter, the number of trucks that you have have come down. So you've not had any gross additions, but you have had some scrappage of trucks. And the branch addition also, I mean, Y-o-Y, it's down Q-o-Q, it's just about 2 branches that we have added. So I mean -- so we've not added trucks. We've not really added too many branches. And you're expecting volume growth to start here from 3Q. So just trying to kind of juxtapose all these 3 together, how should we think -- I mean, how is this volume growth going to come, sir? Like last quarter, you had mentioned some of the customers that had kind of left, you have come back. Maybe if you could give some more sense on where we are going to start seeing this sequential volume growth from of, say, 5%, 7% in the next 2 quarters that you mentioned? Is it like some regional any new markets, new sector? And if you could just give more color?

No, just I want to clarify that most of the tonnage decline is because of some of the rationalization exercise we did. And we are expecting that there will be most of turnaround from the customers which have already been lost because they are not getting expected service from the other transporters. Just to give some clarification on these numbers, see, basically in quarter 1 to quarter 2, what happened, we lost tonnage from the existing. The customers who have been left in the quarter 2 is around 12% of the total tonnage. But whereas the customers what we added, the 14% of the tonnage is added because of the addition of the new customers. And there is a growth in tonnage from the existing customers by around 2%. But for summarizing all these 3, actually, overall, we gained a total tonnage of 4%. And similarly, on the year-on-year basis also, the tonnage from the new customer is around 20%. That kind of tonnage we added from the new customers. This is only on account of the branch expansion exercise, whatever we did in the last few years. Because of that, actually, we are in a position to add these new customers. And because of the rate rationalization, we lost customers to the extent of around 20% of our tonnage. And there is a decline from the existing customer around 10% to 11%. So after summarization of all these 3, overall, there is a decline in tonnage of 11%. Now in coming quarters what is going to happen? Again, the contribution from the new customer, definitely, it is going to improve. And there will be very, very less in the case of the loss of customers on account of rate increase because we have not at all increase in the rate from the last 2 quarters. And similarly, we are expecting that there will be good volume growth from the existing customers. So with that, actually, we are expecting that at least in quarter 2 to quarter 3, definitely, we are expecting around 4% to 5% growth, and that growth will continue in quarter 4 as well.

Okay. But we'll not need to add more trucks, sir, because our net number of trucks have gone down sequentially.

The trucks currently, what is happening on an overall basis, if you see the engagement of outside vehicles have been substantially reduced. The lorry and chassis size has also came down. And there will be some where actually given there is improvement is possible in the existing fleet. So that actually we are going to optimize in the next 1 or 2 quarters. And if required, whatever additional capacity is required to handle the additional tonnage, to that extent we will engage the outside vehicles.

Right. So we'll have to go back to maybe increasing the outside vehicles, which can impact the margins for that incremental tonnage?

Not necessarily. But definitely, there will be synergy and utilization of the existing capacity also, that will add to some margins.

Okay. Okay. Understood, sir. And second is on the employee cost. I mean you said the new wage hikes have been in effect from August, sir, is what you said?

Yes.

Okay. So basically, 3Q is when will be the full quarter impact of this higher employee cost?

Yes, there will be another 1 month additional cost will be there.

Right. So it can be maybe about INR 160 crores, sir? I mean we are at INR 147 crores in 2Q. So it can be about INR 160-odd crores, that number?

No, the average increment in employee cost is around INR 6 crores per month.

INR 6 crores per month?

Yes. Yes.

Okay. Okay. Understood. Understood. And just lastly, CapEx, I mean, any new hubs, what's the plan there? I think you've added 8, 9 hubs in the last, say, year or so, own hubs, I'm saying. So any CapEx that is planned to kind of add owned hubs?

Yes. In the first half year, we incurred a CapEx of around INR 43 crores. Out of this, INR 23 crores is related to the conversion of investment into the branch and hubs. And in the second half, actually, we are expecting that there will be investment of around INR 130 crores to INR 140 crores for the investment in the branches and transshipment hubs. That's what actually we are expecting or estimating the investment in the capital expenditure. And apart from that, there will be around INR 10 crores to INR 20 crores other capital expenditure. So in second half year, actually, we are expecting the total capital expenditure of around INR 160 crores or so.

Our next question comes from the line of Disha Gia from Ashika Institutional Equity.

My first question is regarding the cash flow for investment activities that you have highlighted that the INR 43 crores, it includes around INR 23 crores for leased branches conversion. So could you give some sense on it, like how many branches have we converted to own? And what is the rationale behind it?

INR 23 crore investment is around 3 to 4 locations. And these are all investments not in the hubs and it is at key branches. So basically, some of the critical areas where actually we are not getting the additional space of godown also, and we are unable to operate our vehicles in those areas where we identified those locations and invested into these properties, especially in Salem, Ernakulam and one industrial area in outside Bangalore about us. It is a Tumkuru -- it falls under Tumkuru City area. There it is coming up with a very big industrial area. There actually we invest into one property.

Okay. My next question is regarding that now since there is a kind of a slowdown in branch additions, what is the growth of volume growth that we are seeing in the branches that had been added in last financial year?

No. Basically, the new customer addition, what I mentioned, again, it is from the existing market as well as in new market. So on a year-on-year basis, around 20% of the tonnage what it has contributed, actually it is all from the new customers. And similarly, on a quarter-on-quarter basis also around 14% of the tonnage actually contributed from the new customers. So my point here is the branch expansion and whatever product-wise expansion and product-wise, some of the policies what company has made, actually, that has been facilitated to do this rate rationalization. Without that expansion, without the branch expansion or network expansion, this rate rationalization was not at all possible. So because of that backup, actually, we are in a position to do the rate rationalization and increase the margins.

Our next question comes from the line of Jainam Shah from Equirus Securities Private Limited.

Sir, first question on the employee cost side. So what we have guided for around 2% impact on the EBITDA and 3% for the third and fourth quarter. However, impact has been lower during this quarter. Of course, part of the same has been part of the freight cost, but overall impact has been lower below 1%. So is it the new normal that we can take into account? Or has there been some more increase that we can see from the third quarter onwards? And of course, over the past what we have seen in the employee cost is that we have been doing the hikes and all those things during this third quarter only. So everything has now been accounted for and this is the new normal that we can take into account?

Yes, this is a new normal. And year-on-year basis, just we indicated in the last our statement. Basically, if you see year-on-year basis, it has increased from 16.9% to 18.3%. That is a change in the employee cost, almost around 1.4%. And there is an increment in vehicle running and repair expenses also. There is 4.7% to 5.2%. Again, this 0.5% is on account of increase in the employee cost itself. Means the drivers increase whatever we do. That is -- most of the cost is accounting in vehicle running expenses rather than employee cost.

Got it. Got it. And sir, what would be the reason for the other expense and other income both going up during the quarter? Is it operating loss on the sale of assets? Or is there any one-off as well because the quarterly run rate has gone up.

The op is, again loss on sale of vehicle is because of the accounting entry, but similar amount we are realizing by way of sale of scrap material, tax income is increased. But there is some of the administrative expenses also increased like professional fees and given some of the traveling expenses also increased. On account of that, that is increased.

Got it. Any quantum sir that you can provide for loss of [indiscernible] during 1H or 2Q and also the scrap sell in the other income that we would have booked?

Yes. Yes, in quarter 2 the account --

[Indiscernible] not speaking on mute.

Yes, around INR 10 crores actually it's on account of sale of scrap material, the income. And the loss on sale of [indiscernible] is around INR 5 crores.

This is the 2Q number or 1H number?

It is first half, half year, 6 months.

Got it. Sir, got it. On…

[Indiscernible] quarter 2, the loss is around INR 2 crores, loss on sale of asset [indiscernible]. And sale of scrap is around INR 4 crores.

Got it, sir. Got it. Sir, from a strategy perspective, you see over last probably 1 year and a quarter, so we changed it from a volume-based company to a value-based company. And then we have now been -- we can say, being a good profitable company for consecutive quarters. However, one of the key factor has been volume, which has been lagging probably for a few quarters and growth has not been coming, it is degrowing in a double-digit kind of a number. And what market generally ask for is the volume growth going forward. So is this strategy of being value-based company wherein we focus on the profitability and not on the volume will continue? And is there any more hikes that we are expecting in the realization which will come? Is there any -- we can say any -- still a low-margin contract, which is part of the 2Q will eventually go out in 3Q, 4Q, which will lead to a better realization? And along with that, margin trajectory is largely expected to be similar as what we have done in the 2Q?

No, the rate rationalization exercise is already completed. So actually that has been started in the last financial year itself. In the month of June last year we started. Now by end of March, April, actually, we completed everything. There will not be any further rate rationalization as of now. But currently what we are focusing, we are focusing for the increase in the volumes. For that purpose, actually, as I said, we are identifying the customers actually where -- and we are concentrating more on the service to capture more of additional customers. Not only that, even the customers who have temporarily lost or even they reduced their volumes. Slowly, actually, we are gaining and we have -- clearly, we are establishing gain in those volumes also. So that's the reason we are very optimistic that definitely quarter-on-quarter basis, around 4% to 5% growth in volume is possible.

Our next speaker is Madhur Rathi from Counter Cyclical Investment.

As a percentage of revenue, sir, how much do we see declining over the next maybe 2 to 3 years?

Will you repeat your question, please?

Okay. Got it. Sir, our freight and service cost as a percentage of our revenue has seen a very good improvement in FY '25 as well as we can see in FY '26. So where do we see this as a percentage of our revenue on a steady-state basis maybe over the next 2 to 3 years, sir? Can we see further improvement in this number?

No, it will be maintained at around 5% or so. The vehicle running repair and maintenance cost is around 5% of the revenue. It will be continued at this level.

No, sir. I was asking about the total freight handling and the service cost as a percentage of our sales. So this number you…

See, freight handling cost is predominantly it is a fuel cost. Fuel is contributing almost around 25% to 26% of the cost is related to fuel cost. So there actually we are having the optimum ratio percentage as of now. And currently, out of the total fuel purchase around 40%, 41% actually we are procuring from the refineries where we are saving almost around INR 7 to INR 8 per liter as compared to the normal retail price in India. And that price is always fluctuating. So the gap may -- sometimes it may reach to INR 4, INR 5 or it may reach extent up to INR 10, INR 12 also. But we are expecting that going forward with this kind of a fuel rate what they are today, so definitely the percentage of the fuel expenses will be 25%, 26%. And we are planning to add 1 or 2 more additional own fuel pumps to increase this quantity from the refinery. Currently, it is around 40%, 41%. And with the addition of another 2 pumps, one in Visakhapatnam and Chennai, we are planning. If these 2 pumps are started, then again that percentage may increase around 43%, 44% to the total fuel quantity. So there will be some improvement in -- definitely there will be some reduction in fuel percentage once these 2 pumps will start. But on an overall basis, we are having now optimum level, and that's the reason the EBITDA level is also around 19% also as of now.

Got it. Sir, do we do a tire retreading in-house or this is outsourced and can this be taken in-house to reduce our cost further?

No, we are not doing any retreading, but we are selling the used tires. Up to a certain level we use it and sell it. And even from the existing supplier also, we are having a buyback arrangement. After the usage, actually, the companies themselves will buy back these tires.

Got it. And sir, on a longer term, sir, what kind of investment are we planning maybe over the next 1 or 2 years in terms of new warehouses as well as vehicle addition if we can expect over the next 2 to 3 years?

So, vehicle addition in next half, there will be a very small portion of investment, say, around INR 10 crores to INR 20 crores investment will be there on the vehicle side. But we are planning to invest around INR 130 crores, INR 140 crores in the assets, the land and building we are planning. That will be -- some of the locations have been already identified and some of the properties also finalized. So we are expecting that around that kind of investment in next half year. So total CapEx will be in the range of around INR 160 crores in next half year. And considering the volume growth and again the business opportunities, then we will invest in the vehicles in next financial year.

Our next question comes from the line of Anshul from Emkay Global.

Sir, you alluded that in H2 as well we'll not be adding many vehicles, as many vehicles as we probably did in the last few years. Is it that utilization level on the hub-to-hub route, does that allow us to sort of work with the same set of vehicles despite expecting higher volumes?

Yes. Basically what we did, even quarter 1 to quarter 2, if you see whatever 4% the tonnage has been increased, most of the tonnage has been carried through our existing vehicles because of the route rationalization and most of the vehicles what -- it is the optimum level actually we have utilized. Even turnaround time of the vehicles have been increased. And whatever driver incentives actually we have provided, more of the incentives are related to their efficiencies. So because of that, actually, the turnaround time of the vehicles, we are expecting further improvement in these vehicles. And apart from that, because of the route rationalization and connectivity of these particular vehicles, again, we are expecting some improvement in the efficiency going forward.

Got it. Sir, what would be the current hub-to-hub utilization levels for our trucks?

See hub-to-hub utilization always go with a full capacity, but turnaround time actually, it may cause some delays are happening. There is further improvement is needed in the turnaround time. We are focusing on those areas to improve the turnaround time so that it can do more loads in a particular time.