Blue Dart: Express growth ahead

Well placed to ride e-commerce boom but investors should wait for a better opportunity to enter

Blue Dart Express September quarter numbers were broadly in line with expectations, with sales up 23 per cent year-on-year (y-o-y) on higher volumes and realisations. Adjusted for one-offs, Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins were up 200 basis points at over 11 per cent and are on an upward trend for the past four quarters. Reported net profit at Rs 30.8 crore was up three per cent. There were two exceptional items. While Rs 16 crore went towards impairment of overhauled aircraft engines, there was an additional depreciation charge of Rs 5.2 crore, as the company reassessed the useful life of assets (current quarter share being Rs 2.3 crore).

Adjusted operating profits were up 57 per cent to Rs 66 crore, led by gains from lower freight costs. Margin improvement came about as freight and handling costs as a percentage of sales came in 180 basis points lower y-o-y at 66.1 per cent. While 11 per cent margins are lower than the company's peak of 13 per cent, Kotak Securities' analyst Amit Agarwal believes these are sustainable.

One growth area is e-commerce, which got the company about 20 per cent of revenue, with an annual growth of 35 per cent over the past three years. The company has a market share of 30 per cent in this segment and is expected to benefit in a big way, given the 50-60 per cent annual growth estimated over five years. Notably, margins from e-commerce are higher at 15 per cent, which will help boost profitability.

IDBI Capital analysts say 30-40 per cent of shipments by e-commerce companies are through in-house logistics and cater to large cities. While e-commerce players are currently looking at expansion and top line growth, analysts say this could change over two to three years, as companies look at improving profitability. Blue Dart will be a key beneficiary of increased outsourcing when this happens, feels the research firm.

Kotak Securities, however, believes yearly growth in the segment will come down to around 20 per cent, as bigger e-commerce companies have logistics services in larger cities, while competition from players such Gati and Aramex has increased.

While Blue Dart has big advantages in terms of a large network, substantial assets, healthy balance sheet and a global parent in DHL Express and should benefit from e-commerce growth, stock valuations at 60 times its FY16 earnings are expensive and at a premium to its five-year one-year forward average multiple of 40 times.

Post results, the stock fell three per cent to Rs 4,921, which can be partly attributed to the sharp rise in three months. Investors are advised to consider the stock on dips.