Blue Dart Express Stock Research Report

Volume uptick visible, but margin is still stagnant…..

Blue Dart Express’ (BDE) Q2FY25 performance missed our and consensus’ estimates. Key points: 1) Number of shipments rose 5% YoY while volume (in tonnage) grew 11.8% YoY; 2) EBITDA margin stood at 15.1%, similar QoQ, but down 170bps YoY due to higher growth of surface express; 3) utilisation of new freighters has improved, but still below optimal levels; and 4) management is confident of securing 9-12% price hike from Jan’25. Taking cognisance of Q2FY25 result and management commentary, we believe competitive pressure in air express segment continues to be high, while increasing share of surface express segment is keeping margins under pressure. That said, volume growth of 11.8% YoY is impressive. Maintain HOLD with an unchanged TP of INR 7,500 based on 35x FY26E EPS.

Performance undershoots estimates

BDE’s Q2FY25 EBITDA of INR 2.2bn (down 2% YoY) missed our and consensus estimates by 3% and 5%, respectively. Key points: 1) Number of shipments rose 5% YoY (7% QoQ) to 96.6mn. Volume rose 11.8% YoY (9.8% QoQ) to 343.7kte; 2) weight/parcel rose 6.4% YoY to 3.6kg, implying the higher growth of surface express compared to air express; 3) EBITDA margin was stable QoQ at 15.1%, but was down 170bps YoY, mainly due to higher mix of surface compared to air; 4) utilisation of two new freighters improved QoQ to 82-83%, but is still lower than the optimal utilisation of 90-92%; and 5) other expenses rose 14% YoY (10.4% QoQ) to INR 1.3bn. Going ahead, management expects volume growth to sustain and 2nos. new freighters to achieve optimal utilisation by Q4FY25.

Perceive balance in risk-reward

We perceive mixed outlook for BDE. Key points: 1) The company has announced the annual general price increase (GPI) of 9-12% from Jan’25; however, with regards to competitive environment, the absorption is likely to come at the cost of volume in the near term, we believe; 2) margins might remain under pressure due to increasing share of surface express; 3) the decline in unabsorbed fixed cost, in case of new freighters, is positive and may support margins; and 4) volume uptick in a difficult quarter is a key positive and would efficiently absorb the fixed cost (~50% of overall).

Outlook: Price hike absorption is key

BDE’s Q2FY25 performance was a mixed bag. While the company managed to maintain a healthy volume growth (in tonnage) of 11.8% YoY in an increasingly competitive and subdued operating environment, margins remained stagnant due to increasing share of surface express segment. In our view, GPI contemplated from Jan’25 may come at the cost of volumes in near term, potentially resulting in adverse operating leverage. At CMP, we perceive risk-reward balance and see the extent of GPI absorption as key. Maintain HOLD on BDE stock at an unchanged TP of INR 7,500 (based on 35x FY26E EPS).