Post-Covid B2B recovery, price hikes to drive gains for Blue Dart

Near-term valuations, however, capture the upside

The Blue Dart Express stock was up 1.2 per cent in a weak market after the company announced a price increase of 9.6 per cent. The increase, which is effective from January 1, 2022, has been done to absorb cost inflation. The company’s managing director Balfour Manuel highlighted that the annual increase is more inflation related and will help the company mitigate cost pressures while ensuring service quality.

The annual increase by the market leader in air express delivery business is similar to the one it took at the start of 2021. This had replaced the emergency services surcharge of 25 per cent on essential services implemented from Q2FY21. Given the hike, cost rationalisation and operating leverage, the company’s operating profit margins had surged to a decadal high of 18 per cent in Q4FY21.

Though margins had dropped to single digits in the June quarter due to the lockdown in April and May, the company managed to post a profit at the net level. Analysts at Edelweiss Research had indicated post the results that the performance was a sign of a leaner cost structure and pricing power. Gains on both counts could sustain going ahead given the ongoing cost cutting efforts and price hikes.

With the recovery gathering pace amid receding Covid cases, Amit Agarwal of Kotak Securities expects a bounce back in the automobile, consumer durable industry, pharma, retail and food & beverage industry. This will lead to an increase in demand for express delivery services in the business-to-business or B2B segment which accounts for 75-80 per cent of Blue Dart’s revenues.

While B2C/e-commerce remains a high growth area and fetches about 18 per cent of the company’s revenue, competitive pressures remain high with the company not having much success in expanding its share in this segment.

Though brokerages expect earnings to grow at over 30 per cent in the FY21-24 period, investors should await volume recovery and margin trends before considering the stock. Since its lows in August last year, the Blue Dart scrip has grown by over three times.