Stock Market

Curious case of VRL Logistics: Will airline dream prove fatal?

Chillicious Team

Shares of VRL Logistics were hammered out of shape this week with investors getting nervous on promoter’s plans to foray into airlines business. The newly listed stock, which made a debut on the stock exchanges in April last year, had a healthy rally till its January-March quarter results were announced on March 23. From then on, there was no looking back.

On March 24, the stock was locked at lower circuit, losing 20 percent followed by another 13 percent slump the next day. On May 25, Ashoka Pte  sold 9,49,658 shares of VRL Logistics at Rs 263.86 and Goldman Sachs India Fund sold 8,11,642 shares at Rs 264.65.

Weak fourth quarter results and company’s desire to launch regional airline did not go well with investors in VRL Logistics. In those two days, the company’s market cap fell to Rs 2513 crore which had risen to Rs 4255 crore in August last year.  Surprisingly the bruised stock made a 5 percent jump (May 26) after two days of loss and fell 4 percent at Friday’s closing.

Why is it so nerve wrecking for investors?

Perhaps, sordid saga of liquor baron Vijay Mallya still haunts investors mind. With a burgeoning debt amounting to around Rs 9000 crore, Mallya burnt his fingers and had to eventually shut operations of Kingfisher Airlines causing headache to investors, banks and government.

VRL Logistics, meanwhile, which was listed on bourses with a 40 percent premium from its issue price of Rs 205 per share, was no longer liked at Dalal Street.

However, analysts are not so perturbed yet. Sachin Shah, Fund Manager, Emkay Investment Managers says the way its business has been built up by management and delivery has been exceptionally good. According to Shah, its aviation business news has been probably disproportionately blown out but the biggest disappointment has been the Q4 results.

“Obviously, the stock valuations did not give you any great margin of safety and therefore in spite of we liking this business and the management we weren’t able to own it because at those valuations margin of safety wasn’t there,” he said in an interview to CNBC-TV18. 

Shah pointed out that weak Q4 results reflects overall major slowdown in trade.

“If you look at the railway freight the volumes there has been negative for last two to three months now. If you look at some of the road developers, road transport they are also not doing anything great. So, it is probably to do something with the economy,” he said

What analysts worry is that even though the aviation business is in personal capacity, the promoters may dilute stake in VRL Logistics to raise funds. Chairman Vijay Sankeshwar and Managing Director Anand Sankeshwar proposed to enter civil aviation industry by incorporating a separate company for a regional airline.

In an interview to CNBC-TV18, Sankeshwar has said that they will enter airline business with an investment of Rs 1,400 crore. At the same time he also added that he will dilute Rs 300-400 crore worth shares in VRL over the next three to four year but hopes to still hold a majority stake in VRL post dilution.

“Preliminary estimates suggest that total investment envisaged in the airline business is approximately Rs 1400 crore over next 3-4 years of which my equity will be Rs 400 crore and further Rs 1000 crore will be debt to fund the regional airline business,” Sankeshwar  said in a statement to the BSE.

Currently he holds 69 percent in the company which he intends to reduce to 10 percent in next four years.

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