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CMP: INR6,450 TP: INR7,850 (+22%) Buy Newly acquired aircraft to see gradual improvement in utilization levels

Revenue in line; a slight miss on margins

* Blue Dart Express (BDE)’s revenue grew 3% YoY to INR13.8b in 3QFY24 (in line). BDE handled 0.31m tonnes of cargo volume (+3% YoY), while the realization improved ~1% YoY to INR 44/kg. It carried 92m shipments in 3Q.

* EBITDA margin came in at 9.7% in 3QFY24 (v/s our estimate of 9.9%). The margin was lower by ~160bp YoY, mainly due to higher other expenses and employee costs. EBITDA declined ~11% YoY to INR1.3b (vs. our est. of INR1.5b). PAT dipped 6% YoY to INR816m (vs. our est. of INR841m). The soft operating performance was partially offset by high other income and a lower tax outgo.

* During 9MFY24, BDE reported revenue of INR39.5b (flat YoY), EBITDA of INR3.8b (-25% YoY), and APAT of INR2.1b (-28% YoY). BDE carried 0.9m tonnes of shipments (+3.1% YoY) during the period. The realization per kg stood at INR43.5 (-3.3% YoY).

* Slower growth in the industry and high competition (particularly in surface express) have hit the volumes of BDE. As the overall demand improves and new aircraft stabilize, a pickup in volumes is anticipated in FY25 and FY26. The standalone EBITDA margin, which has reduced to sub-10% level, would also improve as volume levels pick up.

* We cut our EBITDA by ~6%/3%/3% for FY24/25/26E to incorporate 3QFY24 performance and gradual improvement in utilization levels. Reiterate BUY with a revised TP of INR7,850 (based on 20x FY26E EV/EBITDA).

Utilization levels of new aircraft improve; surface express likely to be the key growth driver

* The introduction of two new aircraft has resulted in increased sequential volumes for the quarter. The management remains confident that the newly added aircraft will achieve optimal utilization soon, leading to improved efficiency and higher margins.

vDespite intense competition and ongoing consolidation in the surface express industry, BDE is expanding its market share. The Surface Express sector is expected to be a key growth driver for BDE, with anticipated double-digit growth.

* BDE currently holds a large market share in the document logistics segment, which posted a 7-8% YoY growth during the quarter.

Highlights from the management commentary

* Standalone EBITDA margin is expected to be in the low double-digit range, with a potential 5-6% growth in realization.

* The two aircraft would operate in the existing network where BDE operates currently. Additionally, BDE would add Guwahati to its network using these new aircraft.

* The general price hikes were implemented at the start of the year. Management expects to push a 5% price hike on a blended basis, post-negotiation with customers.

* The festive-led demand was spread between 2QFY24 and 3QFY24.

* Surface Express contributed ~25%-30% to the overall revenue and the balance came from Air Express.

Valuation and view

* BDE is facing temporary challenges, such as the costs linked to the integration of new aircraft and slow industry activity. Despite these obstacles, BDE is making efforts to achieve optimal utilization for the recently acquired aircraft and aims to increase its share in the ground express segment within the overall mix.

* With improved volumes, better realizations, and an increasing market share of BDE in the Surface Express segment, we expect the company to register a revenue/EBITDA/PAT CAGR of ~12%/14%/17% over FY23-26. Reiterate BUY with a revised TP of INR7,850 (based on 20x FY26E EV/EBITDA).

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