Neutral Blue Dart Express Ltd For Target Rs.7,640 - Motilal Oswal
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Festive demand drives volumes in 2QFY22
Robust performance; EBITDA margin near record high
* Blue Dart Express (BDE)’s topline grew 30% YoY to ~INR11.2b (+30% QoQ). Revenue growth was driven primarily by healthy volume growth of 29% QoQ to 0.24m tonnes in 2Q.
* EBITDA grew 35% YoY to INR2b (+138% QoQ). The EBITDA margin jumped to a near-record high of 17.7% (+61bp YoY); it improved on account of better realization and steps undertaken to increase efficiency.
* The company offered a one-time payment of INR360m rewarding its employees for their outstanding efforts during the COVID-19 crisis.
* Strong operating performance and lower depreciation resulted in 66% YoY growth in adjusted PAT to INR1.3b.
* We raise our EPS estimates by 26%/21% for FY23E/FY24E, factoring in the improved margin outlook. Margins are expected to be higher than earlier anticipated, driven by high freight rates and the cost efficiency measures undertaken. We maintain our Neutral rating, with revised TP of INR7,640/share (27x FY24E EV/EBITDA).
Volumes up with strong festive demand from key segments; cost efficiency measures improve margins
* 30% YoY revenue growth is driven by robust growth from end-use sectors such as E-Commerce, Electronics, and Pharmaceutical.
* Cost efficiency measures, such as the reduction of some low-profit zip codes from its network, are helping the company generate strong margins.
* The company bought an aircraft in 2QFY22 (leased earlier). The company now has three owned and three leased aircraft, held through subsidiary Blue Dart Aviation Ltd (BDA).
Highlights from management commentary
* The revenue mix of ground/air stands at ~30/70, and Surface Express is expected to grow faster than Air Express.
* The Document Delivery business was badly impacted during the lockdown. With the Education and BFSI sectors opening up, volumes are improving and have reached almost pre-COVID levels.
* BDE has a diesel pass-through mechanism in place for most contracts, which takes care of the upside and downside in fuel price.
Valuation and view
* We expect robust demand for BDE’s Express segment (both Air and Surface) over the next couple of years, which would lead to a 17% revenue CAGR over FY21–24E. We expect the healthy margin profile to continue, leading to a 19% EBITDA CAGR.
* With no major capex and negligible debt, we expect a 37% PAT CAGR over FY21–24E, with RoE of ~24% in FY24E. The stock trades at 24x FY24 EV/EBITDA. We maintain our Neutral rating, with revised TP of INR7,640/share (27x FY24E EV/EBITDA).
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