Buy Blue Dart Express Ltd For Target Rs. 7,500 by Motilal Oswal Financial Services Ltd
Drop in ATF price and price hikes to support margins
Demand improvement and network expansion long-term growth drivers
* Air express logistics companies benefit significantly from a reduction in the prices of aviation turbine fuel (ATF) as ATF costs account for 35-45% of their total operating costs. ATF price declined 6% MoM (-12% YoY) in Apr’25 to INR83,575/kl. A decline in ATF prices translates into lower per-flight operating expenses, leading to immediate improvements in EBITDA and operating margins.
* For a company like Blue Dart Express (BDE), which operates a fixed schedule of flights daily, these savings are realized at scale and can meaningfully enhance profitability.
* Moreover, reduced ATF prices contribute to higher aircraft utilization, as operating additional routes or increasing flight frequency becomes more cost-effective. This not only enhances the return on fixed assets like aircraft, but also allows the company to grow its network without proportionally increasing its cost base.
* Further, BDE has announced price hikes ranging from 9% to 12%, effective Jan’25. This would help cover several inflationary costs and improve its margin profile further. With improved demand, BDE expects the price hike to be comfortably passed on to its customers.
* With lower ATF prices and its annual general price increase, we expect BDE’s margins to improve going forward. Volumes are projected to improve as new aircraft are stabilizing and routes like Guwahati have been added to the network. EBITDA margin has started to expand as capacity utilization has improved and BDE has shifted some volumes from the third-party cargo to its own aircraft. We reiterate our BUY rating with a TP of INR7,500 (based on 18x FY27E EV/EBITDA).
New routes ramping up; strong growth in surface/ecommerce
* Capacity utilization of new aircraft is expected to pick up further, leading to better efficiency and higher margins. New routes, like Guwahati, are starting to ramp up and should pick up pace in the coming quarters.
* BDE continues to expand in the surface express segment, which forms 30% of its total revenues. The surface express segment is expected to be a key growth driver for BDE as it is expected to grow faster than the air segment.
Market leadership in air express; focusing on gaining market share in ecommerce
* BDE enjoys a ~60% market share in the organized air express segment (as of FY22) and has been gaining market share in the surface express segment.
* E-commerce plays a crucial role for BDE as it accounts for one-fourth of the company's total revenue. BDE's strong presence and focus on serving the ecommerce market allow it to leverage the growing online shopping trends.
Valuation and view
* Drop in ATF prices, BDE’s price hikes, enhanced utilization of newly added aircraft, increased volumes on newly introduced routes, and network expansion should lead to higher volumes and better margins for BDE.
* BDE’s standalone EBITDA margin has started to expand as capacity utilization has improved and the company has shifted some volumes from third-party cargo to its own aircraft. We reiterate our BUY rating with a TP of INR7,500 (based on 18x FY27E EV/EBITDA).
Lower ATF price to boost margins
* ATF prices declined by 6% MoM (-12% YoY) to INR 83,575/kl in Apr’25, which is likely to support margin expansion for air express logistics companies like BDE.
* Historically, ATF prices tend to move in tandem with Brent crude prices. With Brent expected to remain range-bound amid a subdued global demand environment and relatively limited supply cuts by OPEC, ATF prices are likely to either decline further or remain stable over the next few quarters. This should provide continued cost relief and margin support for air express operators.
* In addition, lower fuel costs improve cash flows and reduce working capital requirements. With less capital tied up in day-to-day operations, air express companies like BDE have more financial flexibility to invest in strategic areas, such as network expansion, aircraft addition, infrastructure upgrade, or technology enhancement.
Network presence
* BDE boasts a strong parentage and an enviable network that serves more than 56,000 locations, backed by a fleet of eight aircraft and 33,400+ vehicles.
* The company has 2,280+ facilities and hubs across India, which help BDE serve 99% 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.
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