Margin improvement a positive for Blue Dart

Revenue growth is expected to be better in the coming quarters

After several quarters of muted performance, Blue Dart posted a better-than-expected show in the September quarter (Q2). While revenue growth continues to be a challenge with the company posting single-digit growth for the third consecutive quarter, gross and operating profit margins were the highest in four quarters, signalling a reversal on the profitability front. 

Operating profit margins, which had hit a multi-year low of 6.9 per cent in the June quarter, rebounded over 400 per cent on a sequential basis to 10.9 per cent in Q2. This came on the back of higher gross margins and lower overhead costs. The company has been implementing cost control measures in line with the strategy laid out by McKinsey. This has helped in growing the operating profit by 67 per cent on a sequential basis to about Rs 77 crore. The improvement in operational performance helped the company post a net profit of Rs 41.4 crore, up 96 per cent sequentially but down three per cent on a year-on-year (y-o-y) basis. 

Going ahead, analysts at Spark Capital expect operating profit margins to expand by a further 225 basis points on the back of improving operating efficiencies over FY17-19. This should help the company report a profit growth of 18 per cent during the period. The key worry, according to analysts, which might have a bearing on costs is the sharp increase in aviation turbine fuel prices and will need to be monitored. 

Driven by higher volumes, the company posted revenues of Rs 703 crore, up five-six per cent over the year-ago period as well as on a quarter-on-quarter basis in Q2. While revenue growth in the e-commerce segment continues to be slow, driven by aggressive pricing from the competition, higher business-to-business sales — especially the surface express segment — helped achieve the reported revenues. While the goods and services tax roll-out has had an impact, its effect is expected to reduce going ahead. Analysts at Antique Stock Broking believe that growth is expected to be in single digits in FY18, but could improve to 15 per cent y-o-y in FY19. 

At the current price, the stock was trading 44 times its FY19 earnings per share estimates. Given the expectations of an improvement in volumes and better operating performance, investors can look at the stock on dips.