Uncertainty over lockdown, logistics cloud Blue Dart's near term prospects

Lower volumes would impact topline and margin performance; revival in discretionary demand crucial

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In an otherwise bearish market, the stock of Blue Dart Express (Blue Dart) surged about 16 per cent intra-day in Monday’s trading session, before closing 5.6 per cent higher at ~2,103.85 apiece. News pertaining to the lifting of supply ban on all essential and non-essential items across states improved investor sentiment. However, it may be too early to expect a full recovery in growth.

Factors such as state-wise logistic disturbance, uncertainty over the lockdown period (impacting overall volumes), and delay in recovery of discretionary demand are near-term business risks for Blue Dart, which provides surface and air-based courier and cargo logistics solutions. 

The nationwide lockdown amid the coronavirus pandemic has disturbed the entire delivery system within the country (including air and surface), which has impacted the business of express delivery players such as Blue Dart. Not only the top line, but lower volumes would also impact its profitability in the next couple of quarters. “Lower air and surface volumes would negate the cost optimisation and employee rationalisation initiative by the management in the near term,” according to analysts at ICICI Direct. 

 

 

Though the company is still delivering essential items, revenue contribution of these products for Blue Dart is not significant, say analysts. Thus, a recovery in overall demand, especially of discretionary items is crucial. However, according to some analysts, there is uncertainty over the length of the lockdown period. Also, even after the lockdown period, it is unclear how long it takes for discretionary demand to recover.

Apart from demand, operational issues — including a likely labour shortage — is another worry. While Blue Dart’s business is expected to remain weak till first half of 2020-21 (April-September 2020), some recovery is likely from December 2020 quarter onwards. Yet, the silver lining is the expectations of market share gains from small players. As the latter would be more affected during the ongoing crisis, recovery would be comparatively difficult for them. The jury, however, is out on this. 

For now, investors are recommended to await for signs of the current tough situation abating. Although the stock (following a broader market fall, with the Sensex down about 26 per cent) is down by about 24 per cent in the past one month, and 42 per cent from its 52-week high, at 44x its FY21 estimated earnings, it is still not cheap.