Company Name – Blue Dart Express Limited (Blue Dart)
Current Share Price – INR 6,486 (April 12, 2022)
Market Cap – INR 15,392 cr
1. What is interesting about the stock?
Logistics is like the circulatory system of any functioning nation. Just like how we need the circulatory system to deliver essential nutrients to every cell of our body, the logistics network in a country is irreplaceable as the physical medium for the movement of physical goods and products. Unless teleportation or long-distance portals are invented in the future, it is safe to say that logistics networks will continue to exist and get better as we advance through time.
The courier industry is a critical part of the logistics industry. In a world that is becoming more and more connected through various means, and businesses are expanding like never before, the courier industry plays a vital role in the functioning of fast-paced economic systems everywhere, especially regarding the delivery of urgent materials like signed documents, official notifications, and many others. The rise of the e-commerce sector with its focus on on-time delivery with high-quality service has further reinforced the importance of this industry subsector, especially the air express delivery subsegment.
Thus we have established the critical importance of logistics and the courier industry. But there are very few public investment options in the logistics sector in India. Let us look at one of the most reliable listed companies in the logistics and courier sector in India: Blue Dart.
Blue Dart is a leading Indian logistics company that is involved in express courier delivery services. It was founded in 1983 by Akhlaque and his friends Khushroo Dubash and Clyde Cooper. The Company was acquired by DP-DHL in 2005 which still holds a 75% stake.
Blue Dart is currently the market leader with a 53% market share in the organized express & parcel delivery segment in India. It delivers to over 35,000 locations in over 14,000 pin codes in India.
The Company is now part of the Post-Ecommerce-Parcel division of the DP-DHL Group which provides it with access to express and logistics networks across 220 countries worldwide. Blue Dart operates in a hub and spoke model with domestic hubs situated in Mumbai, Navi Mumbai, Delhi, Bengaluru, Chennai, Erode, Hyderabad, Kolkata, Ahmedabad, Guwahati, and Kochi.
Blue Dart has many services on offer including:
It also has a variety of tech-based business offerings for tracking and shipping for various customer segments such as
InternetDart: Tracking Shipments for the last 90 days
ShopTrack: API for e-commerce customers
PackTrack: API for clients involved in logistics, distribution, and inventory control
MobileDart: Mobile offerings for tracking shipments
ShipDart: Proprietary solution for regular customers
ImageDart: For image confirmation of deliveries and shipments
The Company has also developed SMART (Space Management Allocation Reservations and Tracking) for effective space and revenue management and has implemented it across its aviation system.
The Company also has 2 wholly-owned subsidiaries which are:
Blue Dart Aviation: A Cargo Airline Company
Concorde Air Logistics: A Logistics & Supply Chain Company
Blue Dart Aviation owns 6 Boeing 757-200 freighters which are used for the air cargo delivery for Blue Dart. This makes Blue Dart Express the only courier company in India that does not have to depend on commercial airlines for its air shipments.
The logistics sector in every country is critical to its economy and overall functioning. The Indian logistics sector has been growing at a CAGR of 10.5% from 2017 to 2020 before the pandemic hit the brakes on this growth. But the sector is expected to revive soon with additional momentum coming from many long-term drivers such as
Rising E-commerce sector
Increase in consumption in Tier-2 & 3 cities
Implementation of sophisticated technologies to enhance industrial supply chains and logistics
Increase in trade (import/export volumes)
The logistics industry in India remains very fragmented with only 10-15% of the overall market covered by the organized sector. Thus, there is a lot of scope for market capture for these organized players that can provide superior transit services at greater efficiency vs their unorganized peers.
There are only 2 other listed players in the courier segment in India which are:
Market-leading position in the organized air express segment which is widely expected to rise due to several long-term drivers. Given its strong brand and market position, the company is also in pole position to capture market share from the unorganized sector.
Strong parentage with DHL - DHL is a leading international logistics giant with a presence in over 220 countries. The association with DHL not only provides the company with a steady source of capital for expansion but also helps in developing suitable technologies and business practices that have been perfected at the global level in the logistics industry.
Focus on expanding in high-yield businesses and looking for profitable growth. The company is focused on developing steadily in the e-commerce segment which is expected to be the fastest-growing logistics sector in India that also has requirements for better customer experience and service delivery vs other traditional logistics sectors.
2. Key Historical Financials
The Company has grown its sales at an 11% CAGR in the last 10 years but PAT grew modestly at a CAGR of 2% in the same period. The pandemic hit the Company hard in FY20 and FY21 and although sales were not below FY19 levels, the company saw losses of Rs 38 Cr in FY20, and its growth momentum collapsed.
Blue Dart saw a big rise in operating cashflows in FY21 with CFO rising to INR 750 cr from INR 364 cr in FY20. This was mainly on account of a rise in profits in FY21 vs losses in FY20 and working capital movement including a drop in receivables and a big rise in trade payables. This resulted in a high CFO/EBITDA of 109% in FY21 from 77% in FY20. The change in CFI was also high at INR 529 cr in FY21 vs INR 193 cr in FY20 due to investments of surplus cash in FD and mutual funds.
3. What is my view on Company valuation?
Blue Dart has seen a rise in its share price of ~30% in the last 5 years vs the NIFTY 50 Index which has risen ~100% in the same period. It is also behind the NIFTY500 Index which has risen ~90% in the same period.
This shows that Blue Dart has significantly underperformed the general market.
The Company trades at a P/E (TTM) of 43x vs 52x for Gati:
Blue Dart has a ROCE of 25% vs -0.4% of Gati
Company is significantly bigger than the Gati - Blue Dart has quarterly revenues of above INR 1,200 cr in Q3FY22 vs ~INR 400 cr for Gati
Based on the steadily improving market share figures for Blue Dart and the massive potential for the logistics industry in India, particularly the courier and e-commerce segments, I expect Blue Dart to recapture its pre-Covid growth momentum and rise at above 10% revenue CAGR for the next few years, barring any new surprises from the pandemic.
At its current valuation, the stock does not appear to be cheap at all but given its strong market position and the long-term potential of the market, it is a good stock for long-term investors to look into.
4. What are the risks to the investment analysis?
Risks to the analysis are:
The biggest risk is a general economic slowdown. Players in this sector are characterized by high fixed costs associated with setting up the necessary infrastructure and maintaining them. Thus any drop in economic activity shall result in a drop in business for companies like Blue Dart which would directly result in losses due to the high fixed costs remaining constant. This was what happened during the pandemic
The competition in this sector is intensifying. Passenger airlines are also looking to step into the air courier space to diversify and look for new revenue sources, while many start-ups have also come up in the past decade. One such example is Delhivery, which has already exceeded Blue Dart in revenue terms and can pose a big threat to Blue Dart going forward. The recent entry of Amazon into the e-commerce logistics sector also poses a big threat to Blue Dart’s expansion in this domain
The systematic decline in document movement is due to green initiatives and digitization. A significant portion of the company’s air express volumes come from document delivery which is under threat due to the reduction in paper use for official purposes.
About the Author
I have over 6 years of experience in the Investment sector and have been an active prop trader in European Bond Futures in the past. Currently I am working as head of Research at Smart Sync Services where we are working on simplifying and expanding financial and investment knowledge to make the investment world as accessible for everyday investors as much as possible.
I graduated from the Master of Finance Program from Cambridge University in 2016 after completing my Bachelor of Engineering program from Jadavpur University, Kolkata in 2011.
I am an insignificant public investor & have avid interest in following emerging trends both in technology and other fast evolving sectors. I am also a lifelong learner and relish the chance to learn something new all the time.
I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.