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Capacity utilization of new aircraft to improve;

outlook bright

High freight handling costs drag down EBITDA

* Blue Dart Express’s (BDE) revenue grew 8% YoY to INR13.4b in 1QFY25 (in line). BDE handled 0.31m tons of cargo volume (+9.6% YoY). The realization decreased 1% YoY to INR42.9/kg. It carried 90.2m shipments in 1Q.

* EBITDA margin came in at 8.1% in 1Q (est. 11%), down 100bp YoY and ~240bp QoQ, due to a sharp increase in freight handling costs as a percentage of revenue. EBITDA decreased by 3% YoY to INR1.1b (est. INR1.5b). APAT declined 14% YoY to INR515m (est. INR837m).

* During the quarter, Surface volumes grew at a faster rate than air volumes. The margin contraction was due to lower margins in the surface segment (vs. air) amid competition. Newly added routes like Guwahati are still ramping up.

* 1Q was a challenging quarter in terms of margins as capacity utilization of new aircraft is still ramping up. We decrease our EBITDA/APAT estimates for FY25 by 12%/13%, factoring in lower EBITDA margins and low profitability in the near term. We retain our estimates for FY26 and maintain BUY with a TP of INR9,500 (based on 24x FY26E EV/EBITDA). With high capacity in place and utilization expected to pick up, we believe BDE is well placed to capitalize on the growth opportunity ahead. Newly added routes ramping up; segments like surface/ecommerce witnessing strong growth

* As the festival season kicks in, the capacity utilization of new aircraft is expected to pick up. As they reach optimal utilization levels, efficiency will improve, leading to higher margins. New routes like Guwahati are starting to ramp up and should pick up pace in 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.

Highlights from the management commentary

* Margins in 1Q were affected due to the competitive nature of the surface segment, which currently generates lower margins compared to the air segment. The company is in an investment phase, resulting in elevated cost structure in the near term.

* The two newly added aircraft capacities have replaced third-party volume with in-house operations. The share of third-party cargo has declined from 20-25% to 10-11% currently. The Guwahati market is still ramping up and the new aircraft are expected to break even in the next few quarters.

* Depreciation may rise from the existing levels, due to capex in infrastructure and IT integration. Air fleet-related depreciation should remain steady.

* PBT margins are expected to be in the range of 7-8% going forward. No margin impact is anticipated from the expansion of hubs.

Valuation and view

* Enhanced utilization of newly added aircraft, increased volumes on newly introduced routes, and network expansion are expected to lead to higher volumes for the company.

* With an increasing market share of BDE in the surface express segment along with network expansion, we expect BDE to register a CAGR of ~17%/32%/36% in revenue/EBITDA/PAT over FY24-26. We retain our estimates for FY26 and maintain our BUY with a TP of INR9,500 (based on 24x FY26E EV/EBITDA).

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