VRL is one of the most efficiently run truck operators in the country, with leadership in less-than-truck-load and a razor sharp focus which gives it ability to have a tight cost control as well as ability to offer most reliable service to its B2B/SME customers. The evidence of this is its industry leading margins and a balance sheet which is almost debt-free despite running such an asset heavy business.

Our bet here was recovery in economic activity and VRL’s ability to gain market share from its unorganised counterparts post implementation of GST. There were various triggers in this story, which took longer to play out due to weak state of economy in 2018 and 2019, but finally started gaining traction as also shared by management in our meeting during mid 2019 and reflected by recent results.

However, COVID caused lockdown has once again broken that momentum and it might take longer to recover given its fixed cost base - all owned trucks, in-house maintenance, all drivers and helpers on payroll etc. leading to operating de-leverage.

We had started here with a 3% allocation as valuation was not low, but opportunity size was huge and it was a tight ship run by an owner-operator, so we wanted to see how our thesis on economic recovery plays out before increasing the bet size. The allocation is down to 1.5% based on current price. As things stand, it seems the thesis has derailed and might take longer to play out. Since we are not comfortable adding here, and given a better opportunity has emerged, we are rotating out of this position to a new one.