Blue Dart Express' volume growth momentum likely to sustain in FY23

Margin levels could see an improvement on higher volumes, price hike

The stock of logistics major Blue Dart Express recently hit its 52-week highs earlier this month and has gained about 34 per cent from its lows in June. Strong volume growth expectations, market share gains, steady margins led to the gains.

The revenue and margin trends are expected to improve as the company has announced average price hike of 9 per cent. The company indicated that the annual increase is taken to offset the impact of inflation and sustain service quality.

The management cited high inflation, rising interest rates and increase in input cost as reasons which have taken a toll on the business. This, coupled with modest economic growth, slow pace of recovery due to global supply chain bottlenecks necessitated the marginal price increase, says the company.

Goldman Sachs says that the general price increase of 9.6 per cent is well above expectations of a 3-4 per cent revision. It expects the company to post strong growth going ahead as well higher profitability, riding on an established delivery infrastructure, better service quality and a healthy balance sheet.

The company had reported a sales growth of 49 per cent year-on-year (YoY) in the June quarter of the 2022-23 financial year (Q1FY23) and the growth was aided by a healthy mix of volume uptick and realisation improvement. Edelweiss Research, too, believes that Blue Dart will continue to post double-digit volume growth in FY23. It expects the surface express business to help the company compete strongly in the e-commerce sector. Given the robust outlook, Blue Dart Express should continue to see earnings upgrades over the coming quarters, says the brokerage.

While demand recovery is strong and is expected to boost volumes, a positive for the company is market share gains in the air cargo segment. Data from the Directorate General of Civil Aviation indicates that during April-August 2022, Blue Dart and InterGlobe Aviation have continued to gain market share from Air India and SpiceJet compared to pre-Covid-19 levels, say Ankita Shah and Ash Shah of Elara Securities. Blue Dart’s current share is pegged at 19 per cent behind market leader InterGlobe Aviation at 36 per cent.

What should benefit logistics players is the soft raw material cost trend. Aviation turbine fuel and diesel prices are down by over 14 per cent and 8 per cent, respectively, from the highs of 2022. Higher inflation due to steep rise in crude oil prices had led to demand reduction and a slowdown in goods transport, according to Elara Securities.

Goldman Sachs, which has a ‘buy’ rating on the stock, has raised the target price to Rs 9,470; this translates to a 9 per cent upside from the current levels. Elara Securities too has a ‘buy’ rating with a target price of Rs 10,248 a share, which offers a healthy 18 per cent gain from the current price. Investors can consider the stock, which is currently trading at 39 times its FY24 earnings estimates, on dips.