Blue Dart: Near-term margins to stay elevated, upside could be limited

Record Q3 performance helps sustain stock price which is up 146 per cent over the last six months

A recovery in demand helped India’s largest logistics player to post its highest quarterly revenues in the December quarter. 

The company posted a 21 per cent jump in revenues, led by higher business-to-business segment sales, festive season e-commerce, and an uptick in the small and medium enterprise business in smaller towns. Growth was led by both higher volumes, as well as realisations.

While document volumes continue to improve, they are yet to touch pre-Covid levels. The share of the business-to-consumer segment in overall revenue increased by from 18-20 per cent to 22-23 per cent in the quarter. The company indicated that sectors, such as e-commerce, pharmaceuticals, and consumer electronics, among others saw rapid scaling up driven by a shift in consumer buying behaviour and consumption patterns.

Higher volumes and cost-cutting efforts helped the company post strong operating profit margins for the second consecutive quarter. Margins more than doubled over the year-ago quarter to 16.8 per cent. 

In addition to operating leverage and ongoing cost optimisation, yield management helped improve profitability. Increased market share, price hikes, and conversion of leased aircraft into owned ones would help maintain margins in the current quarter. Given the lower cost structure, analysts believe the company can maintain a 15 per cent margin in FY22.

The improvement over the last two quarters has made the Street optimistic about the company’s prospects. “After remaining negative on the company for over two years, we turned positive post Q2FY21 as we believed most problems (high-fixed cost, unfavourable business mix, and rising competition) were behind. A quarter on, things continue to move in the right direction,” say analysts at Edelweiss Research.

Given strong client additions and the Covid-19 distribution opportunity, brokerages believe growth and margin gains will continue. However, given the 148 per cent return over the past six months and the sharp rerating, the upsides can be limited. Investors can look at the stock on dips.