VRL hits air pocket over promoters' aviation plan

A 32% drop in Q4 net aided the fall in stock on the stock exchanges

Shares of VRL Logistics fell 20 per cent and got locked in the lower circuit on Tuesday after promoters announced their plans to enter airline business in their personal capacity.

The stock dived to Rs 315, down Rs 78.7 on the BSE (formerly Bombay Stock Exchange).

VRL promoters, Vijay Sankeshwar and Anand Sankeshwar, told the BSE, "We are currently proposing to enter the civil aviation sector by incorporating a separate company to undertake the business of a regional airline."

The promoters said, "Board members should note that we may seek to dilute a portion of our shareholding in VRL to provide us with liquidity to enable our investment for the aviation venture."

Vijay Sankeshwar, chairman and managing director and promoter of VRL Logistics, told the BSE, "Our preliminary estimates suggest the total investment envisaged (expected) in the airline business is approximately Rs 1,400 crore over the next three-four years, of which my equity will be Rs 400 crore and Rs 1,000 crore will be debt to fund the regional airline business."

On whether he would drop his plan to sell stake in order to enter the airline business as shareholders aren't positive about it, Vijay Sankeshwar told a news channel that "I am not bothered whether my shareholders like it or not". The statement upset the investors.

After market hours, Vijay Sankeshwar clarified his position: "Certain comments have been blown out of proportion to state that we do not care about the investors. What was intended to be said was we would not be bothered about the negative opinion on the project."

VRL told the BSE it was not associated with the venture and the decision of the promoters to enter this business was their own.

VRL net profit fell 32 per cent over the year for the March quarter at Rs 13.2 crore. Revenues grew 4.5 per cent to Rs 416 crore over the year.

"The solid fall in profits is the primary reason for Tuesday's fall. The plan of entry into regional airlines is secondary," says G Chokkalingam, chief executive and founder, Equinomics Research and Advisory.

He believes the valuations for the stock are stretched.  VRL shares are valued at nearly 35 times trailing 12 months EPS (earnings per share).

VRL Logistics is based in Hubli, Karnataka. It runs passenger and goods transport as well as parcel delivery service. The promoters hold 69.5 per cent shares in the company.

"We remain the largest shareholders of VRL and we do not anticipate our stake to significantly decrease in the company," Vijay Sankeshwar told the BSE.