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Well placed to capitalize

In this report, we present key takeaways from BDE’s FY22 Annual Report.

BDE enjoys market leadership in the Air Express segment, continues to focus on the high growth e-commerce space

* BDE enjoys ~54% market share in the organized Air Express segment as of FY21 and has been picking up market share in the Surface Express segment. ? e-commerce is a key vertical for the company and constitutes roughly onefourth of its revenue. BDE saw strong growth in this segment in FY22.

* The e-commerce market witnessed a surge in growth, with consumers and businesses ordering everything from groceries to consumer durables online. As per a Ken Research report, the Indian e-commerce Logistics industry is expected to grow to INR493b by FY25, at a CAGR of 23.6% over FY20-25.

* BDE provides the most efficient solutions to the e-commerce industry such as enablement of digital payments through 16 digital wallets on courier handheld machines, apart from acceptance of credit and debit cards.

* BDE expects e-commerce to be a key growth driver over the next few years.

Regular price hikes and improved volumes have ensured strong margin, despite an increase in fuel cost

* BDE runs a dedicated fleet of cargo aircraft between the seven airports that it operates from. Aviation Turbine Fuel (ATF) accounts for ~40% of direct operating costs for an Express Logistics airline.

* Despite a steep rise in ATF prices in FY22, BDE was able to maintain gross margin at 36% in FY22.

* BDE has an internal hedging mechanism, termed as a fuel surcharge mechanism, for passing on the rise or fall in ATF costs to its customers.

* Also, the sharp rise in volumes during FY22 (+30% YoY) has helped BDE to maintain its margin performance.

Focus on technology has helped BDE remain competitive in the market

* Technology and digitalization have always helped BDE remain a step ahead of the curve in a highly competitive industry. The company continues to offer contact less deliveries (CLD), which was made possible by activating various digital wallets, net banking, credit and debit cards, UPI, B-QR code, etc.

* Breakthrough initiatives like delivering Medicine from the Sky: BDE and its partners supported the ‘Medicine from the Sky’ initiative. Under this initiative, it leveraged the use of drone flights through the Blue Dart MedExpress consortium to enable pickups and deliveries of mission-critical shipments in the remotest areas of India. These Unmanned Aircraft Systems, or drones, can even handle BDE’s specialized Temperature Controlled Shipments with a payload of up to 5kg.

* BDE has enhanced its application programming interface (API) based solutions for its customers. This allows exchange of detailed manifest to ensure an automated and seamless supply chain, from pre-pick up to post-delivery, inclusive of collections.

* The company launched a digital vendor portal that will help initiate paperless transactions for all its vendor partners in FY22.

Capitalizing on its vast enviable Logistics network

* BDE has a strong parentage and an enviable network, catering to more than 35,000 locations, with a fleet of six aircraft and more than 12,000 vehicles.

* The company has 2,347 facilities and hubs across India, which help it to service 98% of the pin codes.

* It plans to further strengthen and consolidate its air and ground infrastructure, expand its reach, and offer the ‘best-in-class’ transit times.

* BDE is looking to add another aircraft in FY23. The robust network built over the years will help it capitalize on the growth opportunity in the Express Logistics space.

Focus on ESG initiatives

* Focus on ESG initiatives ? The DPDHL Group had set a 30% carbon efficiency improvement target over the base of CY08 by CY20 for all group companies. BDE achieved an efficiency improvement of 31%/34% in CY19/CY21 and has set a 50% carbon efficiency target by CY25.

* BDE is contributing towards a sustainable environment via its GoGreen initiatives by replacing diesel-operated tugs, farm tractors, and its petrol and diesel-driven vehicles with electrically operated vehicles. In FY22, 12 batteryoperated tugs and three motorized buggies were deployed for its ground operations teams in Bengaluru, Hyderabad, Delhi, and Chennai.

Valuation and view

* Despite the extremely challenging past couple of years, BDE has managed to grow revenue through improved volumes and realizations. Through its dedicated aircraft fleet service, its operations were less impacted as compared to pure Road transporters.

* Going forward, we expect margin to stabilize in the 16% range as BDE, with its strong brand image and established clientele, will be able to take the required price hikes to pass on the increase in costs.

* BDE is also 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 the growth 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%/14%/14% over FY22-24. We maintain our Neutral rating, with a TP of INR8,200/share (20x FY24E EV/EBITDA).

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