Blue Dart Express Ltd.'s margin will improve to 13% by the next fiscal due to better capacity utilisation and less disparity between the prices of Brent crude and aviation turbine fuel, according to Motilal Oswal Financial Services Ltd.
The logistics-solution provider's volumes will see a notable rise due to the upcoming festive season, improved utilisation of new aircraft, and expansion of the branch network, the brokerage said in a note on Thursday.
Motilal Oswal maintains a 'buy' rating, with a target price of Rs 7,840, implying an upside potential of 17%. It anticipates that these factors will enhance margins in the second quarter.
The financial services firm also expects a compound annual growth rate of 15% and 23% for revenue and net profit for fiscal 2023–25.
Better Capacity Utilisation
The revenue generated from two additional aircraft, which was incorporated in the last quarter of fiscal 2023, was only realised during the last 10 days of the June quarter, Motilal Oswal said.
These aircraft additions will augment the company's capacity by 20%. There can be a significant improvement in capacity utilisation in the second quarter, according to the brokerage.
Blue Dart previously used the cargo space of passenger planes for shipping, the brokerage said. With the new aircraft, some cargo capacity will shift, resulting in cost savings, especially during peak hours when belly cargo costs are high, it said.
Blue Dart intends to expand its current network of major metropolitan areas by adding new routes, which will boost shipment volumes.
Margin Improvement
The company's Ebitda margin faced pressure due to the unfavourable gap between the prices of Brent crude and aviation turbine fuel, which did not correct in line with the former's prices. The costs of the newly added aircraft also affected the margin, Motilal Oswal said.
However, the disparity between the price of Brent crude and ATF has reduced over the last several months, and that should support margins. The rise in volumes due to higher demand during the festive season will support the margin enhancement, it said.
Growth Drivers
In fiscal 2022, Blue Dart held a dominant 60% market share in the organised air-express segment. The company has been steadily increasing its market share in the surface-express segment, which now accounts for 30% of its total revenue, according to Motilal Oswal.
This 30% share is projected to expand at twice the rate of the air-express industry, primarily due to the cost advantage it provides. Consequently, the company is expected to achieve double-digit growth compared to single-digit industry growth, it said.
E-commerce currently contributes to 25% of the company's revenue and continues to serve as a powerful growth catalyst. This is especially notable as direct-to-consumer businesses increasingly prioritise quicker delivery times, Motilal Oswal said.
The brokerage underscored that Blue Dart is expanding its market share in the surface-express segment and is now presenting stronger competition to other business-to-business express-service providers compared to the previous decade.
Shares of Blue Dart rose 1.26% to an intraday high of Rs 6,800. It pared gains to trade 0.18% higher at Rs 6,727.75 apiece, compared to a 0.04% advance in the benchmark NSE Nifty 50 at 10.56 a.m.
The stock's relative strength index stands at 57, indicating that the stock is neither overbought nor oversold.
Five out of the nine analysts tracking Blue Dart maintain a 'buy' rating on the stock, one recommends 'hold' and three suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 4.8%.
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