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Outlook robust; capacity expansion on the cards

* BDE has delivered a robust performance over the last several quarters, despite a steep rise in fuel prices. It has been able to take adequate price increases, which helped maintain its robust margin. The cost control measures are playing out well, with BDE clocking a record high EBITDA margin.

* Going forward, the unparalleled network of BDE and its strong growth in Express Cargo will drive consistent volume growth. With an improved outlook and capacity utilization currently near its peak, BDE is actively looking to add one aircraft to its fleet.

* BDE is looking to raise its contribution from the Ground Express segment from current levels of 30-35%. Growth in Ground Express is expected to be 2x that in Air Express due to the cost differential between these services. With decent volume growth and margin, we expect BDE to clock a revenue/EBITDA/PAT CAGR of ~13%/8%/6% over FY22-24. We maintain our Neutral rating, with a TP of INR7,715/share (21x FY24E EV/EBITDA).

Capacity addition on the cards, to add a new aircraft soon

* BDE ended FY22 with a volume growth of ~30% YoY at 932.7kt, led by strong growth in the e-commerce vertical, which now constitutes ~25% of the business. Other segments like document shipment have been performing well for BDE. With the Education and BFSI sectors opening up, volumes are improving and have almost reached pre-COVID levels.

* With improved outlook and capacity utilization currently near its peak, BDE is actively looking to add one aircraft to its fleet.

Price hike and cost control to aid margin; focus on boosting Surface Express share

* A general price hike of ~9% was undertaken in Jan’22, based on customers and volumes handled. Average realization stood at 4-5%.

* Ground Express will benefit from the recent cut (~7%) in diesel prices from the tax cuts announced in May’22. Cost efficiency measures (reduction of some low-profit pin codes from its network) are helping BDE generate a strong margin.

* BDE is looking to increase its contribution from the Ground Express segment from current levels of 30-35%. The growth in Ground Express is expected to be 2x that in Air Express due to the cost differential between these services.

Valuation and view

* BDE is seeing strong volume growth and the outlook remains robust. With utilization levels peaking, it is crucial for BDE to add an aircraft to its fleet. Margin is likely to stabilize at 14.5-15% levels.

* With decent volume growth and margin, we expect BDE to clock a revenue/EBITDA/PAT CAGR of ~13%/8%/6% over FY22-24. We maintain our Neutral rating, with a revised TP of INR7,715/share (21x FY24E EV/EBITDA).

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