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Blue Dart Express’ (BDE) Q4FY23 performance undershot street estimates by 6%;
however, it was broadly in line with our estimates. Key points: 1) Number of
shipments rose ~12% YoY to 82mn, possibly due to higher share of road cargoes;
2) realisation/kg remained static QoQ, implying insufficient absorption of price
hikes taken in Jan-23; 3) consolidated EBITDA margin dipped to 16.4% (lowest
since Q1FY20) on negative price-cost effect. Going ahead, we envisage bumpy
road for the company as competitive intensity in air express space builds up and
moderation in ATF prices is not significant. Besides, current subdued volume
growth for enterprise customers to result in slower increase in margins, we
believe. We introduce FY25 estimates and rollover valuation to FY25E EPS. While
we expect improvement in performance, we lower our multiple to 25x (earlier 30x),
factoring in several headwinds that the company is currently facing. Our revised
TP works out to Rs5,415 (earlier Rs6,340). Maintain REDUCE.

Margin continues to contract: BDE’s consolidated EBITDA of Rs2bn (down 31%
YoY) was in line with our estimates, but missed street estimates by 6%. Key
highlights: 1) Consolidated gross margin improved slightly QoQ to 42.2% mainly due
to slightly lower ATF prices and static realization; however, it was down 530bps YoY
due to negative price-cost effect; 2) number of shipments rose to 82mn (up ~12.1%
YoY) as BDE focused on augmenting its market share; and 3) EBITDA/kg declined
38% YoY (3.6% QoQ) at Rs7.3 owing to higher overheads, especially employee
cost. Going ahead, we believe intensifying competition in the company’s operating
space is likely to keep EBITDA margin under pressure. However, we envisage
volume growth of 10% YoY through to FY25E, though at the cost of realisation
which is expected to remain broadly static.

Price hikes and network expansion are key: BDE announced price hikes across
its service categories (to be effective Jan’23) in order to ward off cost inflation.
However, we fail to see any impact on realisation thus far. The company has
recently procured two Boeing 737-800 freighters that would increase BDE’s
penetration in smaller cities. However, we wait for the company to achieve the
break-even capacity of 60% on the new freighters, for them to be EBITDA accretive.

Outlook: Headwinds persist. In the near term, we expect stock performance to be
constrained due to increasing competitive pressures in both air and ground
categories. While fleet augmentation and price hikes might have the intended
positive impact, we would wait for clarity on this front. We value BDE stock on 25x
FY25E EPS corresponding to 1 deviation below the mean as we expect headwinds
on the path of earnings recovery. Our revised TP works out to Rs5,415 (earlier
Rs6,340). We maintain REDUCE.

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