Hold Blue Dart Express; target of Rs 7,500: ICICI Securities

hold

ICICI Securitie's research report on Blue Dart Express

BDE’s consolidated EBITDA at INR 2.02bn (up 6% YoY; down 10.5% QoQ) missed our estimates by 7% while revenue was in line. Key points: 1) Tonnage grew 10% YoY to 313.1kt while number of shipments rose 7.3% YoY at 90.2mn; 2) EBITDA/kg declined 3.3% YoY (15% QoQ) at INR 6.5 as volume growth was primarily driven by surface segment; 3) employee cost rose 10.5% YoY at INR 2.4bn owing to increments and ex-gratia; 4) depreciation and interest cost rose 19.5% YoY and 7.5% YoY, respectively, due to investment in new hubs; and 5) new freighters have not yet hit their optimal capacity utilisation, mainly in Guwahati. However, management expects them to reach break-even levels by Sep’24. Going ahead, we expect surface express segment to drive growth where competitive intensity is significant. Even in air express, we see competitive pressures, particularly in e-com segment. Hence, we expect margins to remain lower than the recent high levels of 18-20%.

Outlook

Blue Dart Express’ (BDE) Q1FY25 performance undershot our estimates. Key points: 1) EBITDA margin was down 35bps (202bps QoQ) at 15.4%; 2) tonnage growth of 10% YoY and shipments growth of 7.3% YoY were led by surface express segment; 3) new freighters have still not reached their optimal utilisation (in Guwahati); and 4) investment in hubs has resulted in additional depreciation and interest cost. Going ahead, we have pencilled in EBITDA margin of 16.2%/17.2% for FY25/26E on progressively higher utilisation of new freighters. We have also raised our FY26E EPS by 3%, factoring in slightly higher volume. Our revised TP works out to INR 7,500 (earlier INR 7,280) on an unchanged 35x FY26E EPS. At CMP, we find risk-reward balanced; downgrade to HOLD (from Add).

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