Street quiet as Blue Dart delivers muted results for a 7th straight quarter

Investors advised to wait for traction in revenues and margins before considering stock

The stock of Blue Dart — India’s largest listed logistics company — is trading at yearly lows. However, not many brokerages are betting on the company’s prospects. This is because for the seventh quarter in a row, the leader in the air express segment has posted disappointing numbers. 

Operating profit margins, which rose more than 11 per cent in Q3FY18, were on a downtrend and have been at sub-5 per cent levels in the last three quarters. 

Even in the September quarter, the firm posted a margin of 4 per cent, adjusted for the accounting impact of Ind AS 116. Employee costs continue to weigh on margins, as they account for 18-23 per cent of its standalone and consolidated revenues. The transition to the road express segment model has been an overhang on its performance. 

Analysts at ICICI Securities say: “There are difficulties in realigning the excessive branch-employee network, created to service the air express model, into the road express model. This remains the key cause of distress for Blue Dart’s operating performance.” The firm has been investing in expanding its road network as part of its plans to reach 21,000 pin codes from 17,000 now. 

Many of the road routes are operating at lower utilisation, which has led to poor operating profit margins. 

While analysts believe the investments in the road express segment should help the firm gain market share, it will take some time to scale up. The impact on overall sales, too, may not be large as it constitutes less than a quarter of overall sales.  

In addition, Spark Capital expects further challenges from increasing competitive intensity on account of higher cargo capacities of commercial planes and pricing pressure from ground express service providers. 

Shifting preference towards insourcing logistics by e-commerce firms is also eating into its revenue pie. The company, according to ICICI Securities, needs to find alternative business segments and ways to make the organisation leaner and focus more on surface transport.

Despite the multiple headwinds and low growth scenario for the air express segment, the stock is trading at 40x its FY21 earnings estimates. 

Investors should await a meaningful traction in revenues and margins, before considering the stock.