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Blue Dart Express: In the sweet spot of logistics
With a strong market presence, deep networks, best-in-class service offering, and a robust demand outlook, BDE is well positioned to drive a period of accelerated growth.
Blue Dart Express (BDE) Ltd. is South Asia’s leading courier and integrated ground and air express package distribution company. Facilitated by a network covering 55,000+ locations across India, BDE boasts of over 264mn shipments carrying 9,32,690 tonnes annually. It also services more than 220 countries and territories worldwide via strategic alliances. It operates six Boeing 757- 200 freighter aircrafts, of which three are owned and three are leased from DHL. It is also worthwhile to note that DHL Express (Singapore) Pte. Ltd, leading international air express services provider holds a 75% stake in BDE.
BDE is a key logistics operator and should gain traction from sectoral tailwinds
India’s logistics market currently accounts for about 14% of the GDP. In FY21, this market was sized at around $215bn and is estimated to grow to $380bn by 2025, at a CAGR of 15%. At present, only 15% of the $215bn Indian logistics market is owned by organized players presenting additional growth avenues for BDE (organic and inorganic). Several proactive government reforms such as Make in India, Digital India, Aatmanirbhar Bharat, and PLI coupled with a general trend of briskly improving nationwide infrastructure are key macro factors that bode well for the general GDP value chain and in turn the logistics operators which play a key facilitator role.
Premium market positioning vs peers, helps de-risk the investment profile
BDE has strong and unparalleled leadership in the Indian air logistics industry with a 54% market share in FY21, up from 45% in FY15 implying a 5.3% CAGR jump. Delhivery & Gati are other key names operating in this space albeit somewhat behind BDEs breadth and depth. BDE continues to invest in digital transformation with a focus on automation, interactive dashboards, and movement towards best-in-class technology architecture. A diversified and time-definite value proposition enables BDE to charge premiums whilst strengthening its brand positioning vs immediate competition. In the near term, a depreciating rupee coupled with high oil costs could perhaps be viewed as a headwind on overall economics. However, BDE’s ability to largely pass on the costs somewhat de-risks the investment profile while also endorsing its reliable and premium brand positioning.
Solid top line growth, margin expansion, and steady cash flow generation are key themes at play
In Q2FY23, number of shipments rose to an all-time high of 81mn (up 24.6% y/y). BDE has managed to deliver sharp top-line growth at a CAGR of 12% from INR2,799cr in FY18 to INR4,410cr in FY22. More impressively, over the same period, EBITDA grew at a CAGR of 29% (from INR372cr to INR1031cr) driven by a stellar rise in EBITDA margins - from 13% in FY18 to nearly 23% in FY22, implying a nearly 2x jump. ROE/ROCE grew at 44.1% and 38.5% CAGR during FY19-22. Meanwhile, CapEx has seen an uptick (up from INR425cr in FY18 to INR518cr in FY22 implying a 5% CAGR growth) and we expect this to stay elevated. As such, an elevated CapEx endorses a robust demand outlook directionally in sync with the broader macro growth. We believe that cash flow generation (and the dividend) are largely going to remain as key attractions in the investment notwithstanding an uptick in CapEx. BDE’s premium market positioning, fairly healthy balance sheet (net debt/ebitda is at 0.86x), and a disciplined cost management approach are key positive factors. We expect BDE to meaningfully enhance its air capacity and ground infrastructure and in turn continue to drive revenue, EBITDA, and cash flow growth.
Valuation is largely in-line given BDE’s growth outlook and pricing power
BDE (NSE: BLUEDART) currently trades at 38x TTM P/E (broadly in-line with sector PE at 44.2x) and carries a fairly modest dividend yield of 0.79% with perhaps some room for growth. Other comps - VRL Logistics (NSE: VRLLOG) trades at 24.7x, an TCI Express (NSE: TCIEXP) trades at 51.5x. On a TTM EV/EBITDA basis, BDE stands at 15.7x with peers VRLLOG at 11.85x and TCIEXP at 37.44x. Delhivery and Gati trade at negative multiples and are hence incomparable.
Management guidance and near term outlook
BDE is expected to hike its shipment charges by 9.6% across service categories (to be effective Jan’23) to partially adjust for inflation, fuel price uptick, and f/x headwinds. This is expected to be in conjunction with a period of expansion wherein BDE expects to set up 25 outlets in tier - I, and tier - II towns. Furthermore it plans to set up nearly 100 stores designed to give MSME’s faster market access and lower transit times. In our view, this near term outlook seamlessly ties into BDE’s longer term growth narrative.
Disclaimer: The views expressed here are the views of Arkvega Partners LLP, and are subject to change at any time based on market and other conditions. This is neither an offer nor solicitation for the purchase or sale of any security, and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. We strongly advise you to do your own research and consult an accredited investment advisor before investing based on what you read here. Arkvega Partners LLP or its employees may have exposure in the financial instrument discussed above and can close positions in the future without prior intimation.
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