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Price hikes to support margins.

Demand improvement & network expansion to drive long-term growth

* Blue Dart Express Ltd. (BDE) has announced price hikes ranging from 9% to 12%, effective Jan’25. This would help cover several inflationary costs and maintain its margin profile. With improved demand, BDE expects the price hike to be comfortably passed on to its customers.

* As the festival season kicks in, capacity utilization of its new aircraft is anticipated to pick up. As the aircraft reach optimal utilization levels, efficiency will improve, leading to higher margins. New routes, such as 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 likely to be a key growth driver for BDE as it is expected to grow faster than the air segment.

* Volumes are projected to improve with the onset of the festive season as the 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 revised TP of INR9,900 (based on 21x FY27E EV/EBITDA).

New routes ramping up; segments like surface/ecommerce witnessing strong growth; network expansion to support growth

* Following slow growth in 1HFY25, demand for the express logistics segment is anticipated to rebound. Long-term growth in the industry will likely be driven by factors such as increasing urbanization, rising consumer demand, and shifting preferences towards faster deliveries.

* As the festival season kicks in, capacity utilization of its new aircraft is forecasted to pick up. As the aircraft reach optimal utilization levels, efficiency will improve, leading to higher margins. New routes, such as 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.

Valuation and view

* BDE’s price hikes to aid margins and place it in a comfortable position to offset the cost escalations.

* Volumes are improving as the new aircraft are stabilizing and routes like Guwahati have been added to the network. As overall demand improves, a further pickup in volumes is anticipated from 2HFY25. 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 revised TP of INR9,900 (based on 21x FY27E EV/EBITDA).

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