VRL Logistics (VRLL) announces capex plan 5.6 billion to buy 1,600 trucks (approximately 25,000 tonnes of capacity) spread over the next 12-18 months. According to brokerage Motilal Oswal, this capex is necessary to replace its old fleet which is running out due to vehicle scrapping policy and to capture the pick-up in demand in LTL segment.
The brokerage has maintained its buy rating on VRL Logistics shares with a target price of 665 each, which means a potential increase of over 35% from current levels. multibagger stock There has been an increase of over 114% in the one-year period, while it is up around 12% so far in 2022 (YTD).
“We believe VRL Logistics will be very well positioned to capitalize on the growth opportunities post this capacity addition. With a strong balance sheet, VRL Logistics will comfortably manage the capex funding by leveraging additional debt 3-3.5 billion with internal earnings. We revise our numbers to include higher capex numbers as well as expected growth in debt, the note said.
The proposed capital expenditure, which will be funded from debt and internal accruals, reinforces the strong demand outlook that VRL has been indicating over the past few quarters. Its comfortable balance sheet position and strong free cash flow generation will enable it to meet the capex requirement, according to the domestic brokerage and research firm.
Motilal Oswal believes that the proposed capital expenditure will result in a net capacity addition of around 13,000 tonnes, which will allow VRL Logistics to meet the expected growth in industry volumes and reduce the company’s dependence on hired vehicles.
The 1600 vehicles are likely to have the latest features and technology which will help in reducing maintenance time, less stop overs and better uptime resulting in better efficiency.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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