FY22-24e EPS up 3-11% given robust outlook; TP raised to Rs 485; Buy retained
Revenue grew 45% y-o-y from a favourable base last year (two-year CAGR of 10%) and came in 7% above our expectation. Goods transportation (GT), the largest segment, posted 40% revenue growth (two-year CAGR of 15%), of which ~7% was due to increased realisation and the rest (~33%) from higher tonnage. Bus operations business increased three-fold on a favourable base last year, but the business is still ~30% below the pre-pandemic level.
Freight rate increase and operating leverage benefit from a strong top-line performance have, to a large extent, helped to mitigate fuel cost inflation, with the company reporting a 17.8% Ebitda margin (HSBCe: 18.6%). The company reported overall PAT of Rs 495 m, 4% above our expectation and significantly above Street expectations.
Raise earnings estimates: Post the solid Q2 performance, we raise our revenue forecasts by 3-7% over FY22e-24e. We have increased our margin assumptions in the passenger transportation business, which leads to ~10bp increase in FY23e and FY24e Ebitda margin. Overall, we raise our EPS forecasts by 3-11% over FY22e-24e. Our earnings forecasts are significantly above consensus.
Retain Buy rating: We continue to value VRL Logistics using a DCF methodology with a cost of capital of 10.5% (unchanged). We roll over our valuation from September 2021 to March 2022. The valuation roll-over and increased earnings estimates lead to a 14% increase in our TP to Rs 485, from Rs 425. The shares currently trade at a FY24e PE of 14x, while our target price implies a 17x PE.
Key downside risks: Slower and more protracted volume recovery; a sharp increase in fuel costs.