Result Update: Blue Dart Express Ltd - BUY - TP Rs.4050 - Kotak

Bluedart reported stable numbers for Q4FY18 with sales of Rs 7.2 bn (+5% YoY) in a challenging environment with slowing business growth, hyper-active competitive pressures in B2B and B2C segment, introduction of GST and initial hiccups in e-way bill implementation.

Key Highlights

- Operational performance of the company was under pressure on account of increase in Freight and Employee cost. Freight and handling cost was high for the company during the quarter at Rs 4.46 bn (+9% YoY) primarily due to rising crude prices, which we believe the company would be passing on gradually to customers. The employee cost was higher during the quarter at Rs 1.15 bn (+9% YoY) due to year end provisioning of variable pay by the company

- Other income and depreciation cost were stable for the company, while interest cost has fallen with one-third redemption of debentures in Q3FY18. Lower tax provisioning net of tax adjustment of prior period supported the PAT. Consequently, company reported PAT of Rs 342 mn (+12% YoY and -25% QoQ).

Valuation and Outlook

Bluedart is an undisputed market leader in the air express segment, with a dominant market share of ~50%. It is also a strong player in the ground express cargo segment with a market share of ~13%. A fresh strategy under the observation of Mckinsey, implementation of GST and above normal growth in the ecommerce segment are expected to keep the growth momentum healthy for Bluedart. We expect revenues for the company to grow at 5.8% CAGR over FY18 to FY20E, with improvement in margins and return ratios. We believe that Bluedart continue to remain as one of the key stocks to invest in the courier space. Maintain BUY with a reduced target price of Rs 4050 (from Rs 4375) at 40 x FY20 earnings.

We have seen a gradual reduction in the premium commanded by Bluedart in its valuation with drop in quality of financial performance reported by the company. But we believe that the reasons for drop are not difficult to overcome especially when the courier industry is moving towards becoming more organized. We expect the current level of forward valuation (PER 40x) to become the floor for the company which has already factored multiple headwinds faced by the company currently. We estimate the market leader to overcome them and report better numbers going forward.

Shares of BLUE DART EXPRESS LTD. was last trading in BSE at Rs.3342.95 as compared to the previous close of Rs. 3503.9. The total number of shares traded during the day was 2358 in over 582 trades.

The stock hit an intraday high of Rs. 3535 and intraday low of 3251. The net turnover during the day was Rs. 7929273.

Source : Equity Bulls

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