Blue Dart - Lower ATF Prices To Support Margins; Aircraft Addition To Boost Volumes In H2 FY24: Motilal Oswal

Motilal Oswal Report

For an express logistics airline such as Blue Dart Express Ltd., the cost of aviation turbine fuel accounts for ~40% of direct operating costs. ATF prices usually move in sync with Brent prices. In early FY23, ATF surged in line with Brent, but it did not come down when Brent prices declined in the last few quarters. As a result, Blue Dart witnessed under-recovery of fuel surcharge, which affected its margins in FY23. However, ATF prices have significantly corrected recently, which should boost margins for Blue Dart going forward.

Blue Dart has added two new aircraft to cater to tier-II and tier-III cities as it sees a healthy demand outlook in these cities for the long term. Blue Dart would move some of the belly cargo capacity, for which it uses third-party aircraft, to new aircraft. We expect Blue Dart to clock a 12% volume compound annual growth rate during FY23-25, supported by strong growth in the road and air segments.

With lower ATF prices and its annual general price increase effective from Jan’23, we expect Blue Dart’s margins to improve going forward. As the capacity utilisation of new aircraft ramps up, we expect Blue Dart’s Ebitda margin to rise to 13-14% from H2 FY24 onward from the current level of 10-11%.

We expect Blue Dart to clock a CAGR of 14%/21%/26% in revenue/Ebitda/profit after tax during FY23-25.

With an improved outlook and a ~30% correction in the stock price from the highs seen in October 2022, we believe the stock is now attractively valued.

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