Blue Dart: Muted volumes, revenues amid high costs to weigh on margins

Weak margin performance in the March quarter and lack of revenue visibility in the near term led to a 3.4 per cent dip in the stock price of Blue Dart Express. India’s largest listed logistics company by market capitalisation reported a 7 per cent fall in revenues due to an estimated Rs 100 crore revenue loss towards the end of March. Volume decline was higher than overall revenue fall as the company raised prices for select customers in January and February.

The near-term outlook for revenues is likely to be muted due to the extended lockdown and factory shutdowns. The company is shipping pharmaceutical products (under 10 per cent of sales) and has introduced a 25 per cent discount for small and medium businesses to improve volumes. While the company has resumed operations, it is facing demand loss in the current quarter, which could significantly impact revenue growth in FY21. Analysts have estimated a 13 per cent fall in revenues for the current financial year.

The bigger impact, however, is on the margin front. Even though revenues fell 7 per cent year on year to Rs 724 crore, operating profit plunged 90 per cent year on year to just under Rs 3 crore. Consequently, operating profit margin fell to 0.4 per cent as compared to 6-8 per cent that analysts had estimated.

Analysts at Antique Stock Broking believe that margins during the quarter (and year) were impacted by negative operating leverage and high fixed costs for the business with about 65 per cent of the total costs for the company being fixed in nature.

Given the sharply lower operating performance, the company reported a loss (after adjustments) of Rs 8 crore as compared to analyst estimates which had pegged the profit number at Rs 30 crore.

The company had undertaken cost restructuring exercises in Q2 and Q3 of FY20 to bring down costs. However, Edelweiss Securities believe that despite the cost cuts, FY21 will be a tough year with low profitability as demand loss offsets cost benefits.

Other brokerages such as ICICI Securities believe that employee costs which stood at 18 per cent of the topline needs to be reduced significantly to increase penetration and shift volumes in road express segment.

Analysts have cut their earnings estimates for FY21 and FY22. They expect a loss of about Rs 24 crore in FY21 and a 50 per fall in the bottom line for FY22 from earlier estimates. Given the near term headwinds and lack of visibility on growth, investors should avoid companies in the logistics space.