CMP: Rs. 1080                Recommendation: Buy 

Background

Blue Dart Express (BDEL) is one of the premier courier and integrated express package distribution, transportation and logistics companies. The company’s alliance with DHL, world’s leading brand in express distribution services enables BDEL to services more than 220 countries and territories world over. BDEL also offers entire spectrum of distribution services including air express, freight forwarding supply chain solutions and customs clearance.

At the domestic level, the company has the most extensive domestic network covering over 25,498 locations. The tonnage handled was 2,67,533 tonnes as at end of May 2010.

Analyst’s Note:

The company is the dominant leader in the domestic air express industry with a market share of 43 per cent and forms almost 83 percent of its revenues. In the 'ground' segment which includes ground handling, maintenance capability and warehousing, Blue Dart has garnered a market share of only 8 per cent. It is therefore rapidly expanding its ground services network, which currently accounts for about 17 percent of revenue.

Moreover, the logistics services provider plans to increase exposure in the country by targeting small-size acquisitions of niche regional players. Small ticket acquisitions will not only help the company to increase its market share but also aid the achievement of its future plans mentioned above.

The company has also increased the allocation to Rs 850-900 million for the calendar year 2010, for its capital expansion as compared to Rs. 600 million in 2009 towards investments in transit warehouses and hubs and airport facilities.

Also supporting the robust growth prospects of the company is the IMF’s forecast of 9.5 per cent growth rate of GDP for India in CY10 Further strengthening the business of BDEL is the growth in the world economy to be around 4.6 per cent. This translates into higher demand for transit of goods and services which would result in higher revenues for the company.

Also some of the leading Mutual Fund’s have invested in this company due to the healthy growth prospects which are backed by sharp pick up in consumption demand in India that positively impacts the logistic, air express and distribution companies.

On the financial front, the results for Q1 FY10  (as the company follows the calendar year as its year end ) suggest that the company has witnessed consistent growth in its revenues (excluding the recession period in 2008). The net income from operation (inclusive of fuel surcharge) that stood at Rs 2,576.1 million had grown by about 23.2 per cent and its EBIDTA was higher by 92 per cent at Rs. 400.8 million as compared to the previous year on account of higher net income and cost control measures adopted by the management.

The higher operating profit enabled the company to post a Net profit of 237.8 million an increase of 103.4 per cent on a y-o-y basis.

Lastly, despite being in a capital intensive business where working capital requirements are higher, the company’s debt free status enhances the balance sheet position.
 
On the flipside, logistics industry is highly vulnerable to the overall economic cycle and the growth rate of the economy. The fortunes are directly linked to the prospect of services and manufacturing industries.

Conclusion:

The long term demand prospects remain sound and robust. This is backed by a strong domestic demand and an upward revision in the GDP growth forecast by the IMF and the IIP numbers.
 
Currently the company trades at a P/E multiple of about 34 times its forward earnings which is lower than the industry average. Strong brand equity, synergies with its parent (DHL), and dominant position in the air express business makes it a preferred play in the express logistics business. Discerning investors can consider accumulating the stock.