VRLLOG - VRL Logistics Limited Share Price

During the Q1 FY '26 earnings call, management provided an outlook emphasizing resilience and strategic clarity despite facing challenges from contract restructuring and industry recalibration. Key performance highlights included a total income growth of 1% year-on-year, with EBITDA margins sustaining robustly at approximately 21%.

Management noted a decline in volumes by around 12%, attributing it to a conscious decision to exit lower-margin contracts. Despite the short-term impact, they remain optimistic about volume recovery, forecasting a decline of about 8-9% in Q2, followed by normalization in Q3 supported by favorable macro factors such as a strong festive demand cycle and good monsoon conditions.

Management highlighted proactive measures, including intensifying marketing efforts and expanding into untapped markets with a customer base of 9 lakh GST-registered customers. They reported a total of 1,241 branches and 50 transshipment hubs, with plans for further expansion, including opening a new branch in Meghalaya.

Financially, net profit for the quarter stood at around Rs. 50 crores against Rs. 13 crores in the previous year, translating to a PAT margin of nearly 7%. The company demonstrated strong cost control, reducing fuel costs from Rs. 86 to Rs. 83 per liter and improving internal fuel procurement from 33% to 41.5%.

Management indicated expected employee cost increases due to internal increments, projecting a 2-3% impact on revenue for Q2, which will lead to an EBITDA margin expectation around 19% for Q2 and settling to 18% later. Looking ahead, they aim for diversification of revenue and anticipate volume growth from a supportive external environment, while focusing on maintaining their pricing strategy.

Questions and Answers from the Q&A Section of the Earnings Transcript

1. Question: "Is the restructuring that led to a 13% decline in volumes now complete or ongoing? How will volumes shape up in Q2?"

   Answer: Yes, the restructuring is completely done. We have instructed our customers and marketing team to maintain our freight rate strategy. We expect around an 8% to 9% year-on-year decline in Q2. However, we anticipate tonnage in Q3 will match last year levels due to the festival season, and there will definitely be growth in Q4.

2. Question: "What is the expectation for realization in Q2 after the 17% increase seen this quarter?"

   Answer: The realization of around Rs. 7,800 per ton achieved in Q1 will be maintained throughout the year, with expectations for around 8%-9% improvement in Q2 realisations.

3. Question: "Regarding margins, can we expect a normalization due to increases in administrative and employee costs?"

   Answer: Administrative costs will see a temporary increase of around Rs. 2.5-3 crores due to legal fees, while the scrappage loss of Rs. 3.5 crores is a one-time expense. For Q2, we expect EBITDA margins to be around 19%, reducing to 18% in the subsequent quarters due to employee costs increasing by 2%-3% in revenue.

4. Question: "What proportion of our revenue comes from customers in the organized sector who moved back to us after initial restructuring?"

   Answer: Customers who initially left have begun returning, contributing to maintaining our client base. While some corporates adapted to working with both organized and unorganized players, we are actively attracting new customers, focusing on our service quality and low claim ratio.

5. Question: "How much tonnage was let go in Q4 and what percentage has returned?"

   Answer: In Q4, we lost around 360,000 tons of cargo, which brought our tonnage down to approximately 320,000 tons. We have recovered about 30,000-35,000 tons in Q1, thus around 5% to 6% of lost tonnage has been recaptured.

6. Question: "In terms of overall volume demand, do you expect growth in FY "˜26 or will it just match last year's performance?"

   Answer: We expect that overall volume growth will not be there this fiscal; instead, we aim to match last year's tonnage due to favorable conditions like a good monsoon and upcoming festivals.

7. Question: "Can we expect a full-year volume growth of 2%-3% for FY '26?"

   Answer: No, we anticipate that our full-year volume will largely match last year's tonnage due to the factors affecting demand and restructuring impacts.

8. Question: "How does the customer wallet share break down among large corporates?"

   Answer: Large customers contribute about 15% of our total tonnage, and we hold varying wallet shares from 5%-40% based on their distribution networks and regions.

9. Question: "What is the current impact of E-invoicing regulations on moving customers to organized players?"

   Answer: Changes in regulations have yet to show substantial effects in terms of increased business. While interstate movements have improved with E-invoicing, intra-state movements still reflect minimal change.

10. Question: "Given the competitive landscape, how do you perceive competition moving forward?"

    Answer: There hasn't been a notable change in competitive intensity. Organized players are firm, but unorganized competition has lessened. Our strong service and network place us competitively as we negotiate with customers.