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Margins to improve with price hikes and recent correction in ATF prices

* Blue Dart Express (BDE) reported 4% YoY revenue growth to ~INR12.2b in 4QFY23 (est. INR13.1b). BDE handled 0.27m tonnes of cargo volume (+9.5% YoY), while realization dropped ~5% YoY to INR44.5/kg during the quarter. EBITDA margin came in at 10.5% v/s our estimate of 11.8%. EBITDA declined 41% YoY to INR1.3b. APAT declined 48% YoY to INR703m in 4QFY23 (20% below estimate) led by weak operating performance.

* During FY23, BDE carried 328m shipments weighing 1.15m tonnes. The company reported revenue of INR51.7b (+17.3% YoY), EBITDA margin of 12.2% (-370bp YoY) and APAT of INR3.7b (-11% YoY) in FY23.

* BDE’s performance has been hit by subdued volumes and high ATF prices. While it has undertaken general price hike, the impact of the same would be visible from 1QFY24. Further, BDE is negotiating with airlines to provide discounts to compensate for the gap in pricing between Brent and global crude prices. We believe margin improvement could be gradual due to subdued volumes, current inflationary environment and start-up costs related to new aircraft additions. We cut our EBITDA for FY24E/FY25E by 11%/10%. We retain our Neutral rating with a revised TP of INR6,190 (premised on 16x FY25E EV/EBITDA).

Volume growth softens in 4QFY23

* BDE registered 10% YoY volume growth in 4QFY23 (+24% YoY in FY23).

* The Ground Express division presently accounts for ~32% of total revenue. The E-commerce segment represented almost one-fourth of BDE's business.

* The company has added two Boeing 737 aircraft in 4QFY23 that would start contributing to volumes going ahead.

Highlights from the management commentary

* EBITDA margin dropped due to lower volumes, high ATF prices and higher other expenses. Other expenses rose due to new aircraft additions (other expenses as a % to sales jumped ~80bp QoQ).

* Regarding high ATF prices, management indicated that fuel surcharge mechanism was in place but the disconnect between crude and ATF prices hit 4QFY23 margins.

* The newly added aircraft should be operational by end-May’23 as the company is waiting for some clearances.

Valuation and view

* Around 2x jump is expected in the Ground Express segment over Air Express along with capacity additions that would enable BDE to achieve 12% revenue growth over FY23-25E. Margins are expected to improve gradually as new capacity ramps up in the next few quarters.

* We cut our EBITDA for FY24E/FY25E by 11%/10%. We retain our Neutral rating with a revised TP of INR6,190 (premised on 16x FY25E EV/EBITDA).

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