Demand outlook remains robust for Blue Dart Express, say brokerages

Blue Dart Express posted 34 per cent revenue growth in 2021-22, assisted by 30 per cent growth in volumes; the rest came from higher realisations

South Asia’s largest integrated air express courier and logistics company Blue Dart Express has gained 21 per cent over the past fortnight, extending its gains since its lows in March to over 43 per cent. The gains were aided by strong volume growth over the past year and record margins. Prospects of recovery across sectors, profitability at elevated levels, and higher contribution from the ground express segment are stimuli for the company.

What will act as a catalyst is the company’s intent of increasing its contribution from the ground express (surface) segment, with the current levels at 30-35 per cent. The company expects high double-digit volume growth in the surface segment, compared to the high single-digit growth in the air express segment. While the margin profile in both segments is similar, the cut in diesel prices will be favourable to the surface business.

Volume growth trajectory and margin profile of the logistics major will be key monitorables. Blue Dart Express posted 34 per cent revenue growth in 2021-22 (FY22), assisted by 30 per cent growth in volumes; the rest came from higher realisations.

Most growth came from the business-to-consumer (B2C) segment. It posted shipment growth of 42 per cent. The business-to-business (B2B) segment saw 30 per cent growth in tonnage terms.

The company reported a 450-basis point expansion in operating profit margins to 16 per cent, propped up by a strong finish to the year in the March quarter. Margins in the last quarter were at all-time high levels of 18.7 per cent. This was on account of cost optimisation measures, operating leverage, high-margin international air charter services, and reduction in employee expenses.

Say Alok Deora and Dhirendra Patro of Motilal Oswal Financial Services (MOFSL), “Notwithstanding steep rise in fuel prices, Blue Dart has delivered robust performance over the past several quarters. It has been able to take adequate price increases, which helped maintain its robust margin. The cost-control measures are playing out well, with the company clocking a record high margin.”

With its air and surface network operating at peak utilisation levels and strong outlook for B2B and B2C segments, the company is looking at expanding capacity. However, the expanded capacity could be a drag on profitability, with 2022-23 margins at 15 per cent, according to Ankita Shah and Ash Shah of Elara Securities.

MOFSL expects margins to stabilise at 14.5-15 per cent.

Given strong volume expectations, both brokerages expect the company to deliver annual revenue growth of 13 per cent over FY22 through 2023-24.

While MOFSL has a ‘neutral’ rating on the stock, with a target price of Rs 7,715 per share, Elara Securities’ target is at Rs 9,780 per share.

Given the recent rally, investors can consider the stock on dips.