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High operating costs drag earnings; focus remains on volume growth

* Blue Dart Express (BDE) revenue grew 7% YoY to INR14.4b (in line). The company handled 0.34m tons of cargo volumes(+9% YoY) in 1QFY26. Realization dipped ~1% YoY to INR42.4/kg. It carried 94m shipments in 1Q.

* EBITDA margin stood at 6.9% (vs. our estimate of 10.5%; -120bp YoY). High employee costs and other expenses as a percentage of revenue dragged margins.

* EBITDA dipped ~9% YoY to INR1b (vs. our estimate of INR1.5b). Weak operating performance led to a 9% YoY decline in APAT to INR469m (our estimates of INR754m). The Board appointed Mr. Sagar Patil as the new CFO.

* In 1QFY26, though tonnage growth was largely in line with expectations, margins were pressured due to higher costs. We expect an improvement in volumes, realizations, and margins as newly launched routes and recently added aircraft achieve optimal utilization. Additionally, the ground express segment—contributing ~35% to total revenue—is expected to act as a key driver of high single-digit growth. As the integration of new routes and freighters into the network progresses, we have revised our FY26 and FY27 estimates downward. We reiterate our BUY rating with a revised TP of INR7,200 (based on 20x FY27 EV/EBITDA).

New aircraft operating at optimum utilization levels; B2B and B2C segments growing well

* In 1QFY26, BDE reported shipment volume of 94m (+4.4% YoY) and tonnage of 0.34mt (+9% YoY). However, margins were pressured due to higher other expenses.

* Revenue composition remained stable, with air express contributing ~65% and surface express ~35%, while B2B and B2C segments accounted for ~71% and ~29%, respectively. Both segments saw a balanced volume growth for the year.

* In the surface express segment, BDE is expanding its e-commerce presence and expects growth momentum to continue going forward.

Highlights from the management commentary

* Margins remained low due to the change in sales mix, though they are expected to improve going forward.

* BDE maintained or grew its air express market share while leveraging both commercial and passenger airlines.

* Its new aircraft are now operating at strong utilization levels of 80-85%.

* Looking ahead to FY26 and FY27, BDE anticipates strong and consistent growth regardless of broader industry trends, with a continued emphasis on service quality as a competitive edge.

Valuation and view

* BDE is targeting growth through a strong focus on service quality, expansion within the e-commerce segment, and potential freighter additions.

* The ground express segment, which accounts for roughly 35% of the total revenue, is expected to be a key growth driver, supporting high single-digit expansion. However, as the integration of new routes and freighters continues, we have lowered our EBITDA estimates for FY26 and FY27 by 14%/3%, respectively. We reiterate our BUY rating with a revised TP of INR7,200 (based on 20x FY27 EV/EBITDA).

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