Multiple air pockets hit Blue Dart

High competition and increasing costs hit revenue and profit

The Blue Dart stock has been caught in a downtrend spiral since the beginning of July, shedding 18 per cent on worries that the company is losing out to competition and weakening profitability profile. The Street worries were not unfounded, with the company declaring a less-than-expected June quarter results.

A high-cost base and a muted revenue growth led to a 600 basis points year-on-year (y-o-y) decline in operating profit margins at 6.9 per cent. Net profit, too, was down 52 per cent to Rs 21 crore over the year-ago quarter. However, revenues were up about seven per cent at Rs 667 crore, on the back of higher volumes. 

Analysts have cut their earnings estimates for FY18 by as much as 20 per cent.

The company was facing challenges both in the business-to-business (B2B) and business-to-consumer (B2C) segments. The B2B segment, which accounts for 80 per cent of revenues, was impacted by the goods and services tax (GST), while the B2C segment was affected by consolidations in the e-commerce sector. These, in turn, put pressure both on volume and margins.

While e-tailers have increased the share of captive logistics, aggressive pricing from logistics players are impacting the sector and the company’s realisations. 

Analysts at Antique Stock Broking said the entry of passenger airlines into the logistics space through door-to-door services as well as e-commerce players like Amazon eyeing logistics from non-captive segments were the areas of concern for the company.

While some analysts expect the pressure on margins to stay, IIFL expects the growth and profitability to improve, and believes the June quarter was a one-off, given the transition to the GST regime.
 

Analysts at IIFL expect the revenue growth to pick up from this quarter on normalisation of business activities after the implementation of GST, coupled with the onset of the festive season, driving e-commerce revenues. Margins should also expand, as the company absorbs additional fixed costs, they added. 

IIFL expects the company’s earnings to grow 20 per cent over the FY17-20 period.

Analysts expect the growth to come towards the latter part of FY18. Blue Dart has been losing market share due to its higher presence in the air express market and premium pricing.

Near-term outlook for the company remains muted, with re-rating depending on consistent volume growth. Given this, the stock’s price-to-earnings valuation at 58 times of the FY18 estimates is on the steeper side. Investors can avoid the stock till there is clarity over revenue and growth momentum.