Improving fleet utilisation to provide profitable growth
BlueDart reported Q1FY21 results, which saw consolidated revenues declining 47% YoY to | 416 crore (mainly due to focus on operations to support only essential supplies). Further, while utilisation remained weak in Q1 (essential supplies via air freight and some pickup in the B2C segment), July showed logistics operations normalising (upwards of 80% compared to July last year). The company also slashed its courier charges by 25% across retail customers and small businesses in Q1, which further led to losses on the operational front. Demand for movement of the cargo via air continues to see upside due to the prevalent partial lockdown conditions in the economy (that has led to higher surface freight prices and delayed delivery of parcels).
Air cargo segment beneficiary of evolving business climate
In Q1, BlueDart’s cargo aircraft flew across domestic and international locations to carry essential supplies (supported by DGCA and Government of India). Also, owing to continued challenges being faced by the surface and shipping players in timely delivery of the cargo, air cargo is expected to be a beneficiary of the situation in the near to medium term, as the industry normalises and manufacturers rush to transport shipments. For BlueDart, improved product mix (2x realisation to surface) can lower the impact of the slashing of courier prices by the company across segments (the measure is expected to be temporary in nature).
BlueDart expected to be beneficiary of industry consolidation
Covid-19 has hastened the expected consolidation of BlueDart’s competitors (PE funded players) in the B2C and B2B segment, as they are seeing greater stress in cashflow management, inflated labour cost and other expenses. This can deter them from dealing in unprofitable business sales, lowering competitive intensity in the segment. BlueDart being an already profitable player in the space, remains a key beneficiary of such changing dynamics in the sector, which helps it to gain its lost market share.
Valuation & Outlook
While operations are expected to normalise by H2, we expect tonnage growth to return in FY22. BlueDart is expected to tide over the current crisis by continued automation, enhancing technological capabilities and enhance service capabilities. New client acquisitions and a focus on reducing costs is expected to keep the company on a profitable growth trajectory. On the EBITDA margin front, we largely expect it to stay rangebound at 15% in FY22. BlueDart will remain on its road to recovery in the near to medium term. Hence, we change our recommendation from BUY to HOLD with a revised target price of | 2100.
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