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We expect healthy top-line growth for our coverage companies in Q3FY24 buoyed by festive season demand (the entire season captured in Q3 this year against being spread across Q2-Q3 in last FY) with integrated logistics players like Delhivery benefitting from sector tailwinds in both B2C and B2B express markets. Data on freight movement via road was supported by channel checks; however, it tempers down expectations laid by the managements after an uptick seen in volumes in Oct-23 for >15% YoY volume growth in Q3. Margins should see a sequential uptick in a benign fuel price environment and operating leverage kicking in. Management commentary on volume recovery remains critical post a muted H1FY24 performance. We roll forward our target prices to Dec-24 and retain our previous ratings on Delhivery (BUY; TP: Rs470/share), VRL Logistics (BUY; TP: Rs 875/share), TCI Express (ADD; TP: Rs1,550/share), and Blue Dart Express (REDUCE; TP: Rs7,350/share).

Q3 Preview: Festive demand to spruce volumes, sustainability of the same remains a concern

Delhivery: We expect 19% YoY/12% QoQ growth in revenue, with the B2C express segment witnessing 18% YoY volume growth, slightly ahead of the industry’s. The PTL segment should sustain its volume ramp-up (>35% YoY) as the company regains lost volumes during the SpotOn integration incident. Incremental gross margins from transport businesses owing to operating leverage and frontloading of network investments during H1 should result in the company turning EBITDA positive in Q3 (margins at 2.3%). Marginal changes in the long-term growth trajectory for the B2C express segment along with roll-forward to Dec-24 result in a 4% cut to our TP of Rs470.

VRL Logistics: We pencil volume growth of 12% YoY, below management’s guidance of >15% growth in H2FY24 owing to muted demand trends visible post buoyancy in Oct23. Nov-23 e-way bills (proxy for freight movement via road) were down 13% MoM/>9% YoY, suggesting the peaking of demand during the pre-festive season. We expect realizations to inch up 1% QoQ due to the company’s decision to hike rates by 5-10% for contractual customers from Dec-23. Higher depreciation owing to the introduction of the new fleet and scrapping old vehicles is likely to limit growth in EBIT YoY, while higher interest expenses would impact PAT (-10% YoY).

TCI Express: We expect volume growth of 10% YoY/QoQ due to the bunching of festive demand in Q3 as well as seasonality (H2 is stronger for B2B express players). While management had indicated improved utilizations for Oct-23, channel checks suggest muted trends for the remaining months post festivities to weigh on Q3 performance. Sequential margin expansion should continue on account of automation investments and higher scale (24bps QoQ/135bps YoY). Superior cost management in addition to improved utilization due to automation investments will lead to a 22% YoY growth in EPS in Q3.

Blue Dart Express: Higher utilization of new freighters and a dip in ATF prices (average prices in Q3 were down 5% YoY) are likely to propel margins by 127bps YoY/151bps QoQ. Volume growth, aided by seasonality in the B2C industry, is likely to stand at 10% QoQ/12% YoY. Commentary on the pricing strategy in surface and the share of highyield express loads on new freighters remain key observables before we turn constructive on Blue Dart Express.

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