B2B recovery, price hikes may drive gains for Blue Dart

But near-term valuation captures the upside

The Blue Dart Express stock was up 1.2 per cent in a weak market, after the company announced a price increase of 9.6 per cent. This hike, which is effective from January 1, 2022, has been done to absorb cost inflation. The company’s managing director, Balfour Manuel, highlighted that the annual increase is more inflation-related and will help the firm mitigate cost pressures while ensuring service quality.

The annual increase by the market leader in the air express delivery business is similar to the one it took at the start of 2021. This had replaced the emergency services surcharge of 25 per cent on essential services implemented from Q2FY21. Given the hike, cost-rationalisation, and operating leverage, the company’s operating profit margin had surged to a decade high of 18 per cent in Q4FY21.

Though the margin dropped to single digits in the June quarter due to the lockdown in April and May, the company managed to post a profit at the net level. Analysts at Edelweiss Research had indicated after the results that the performance was a sign of a leaner cost structure and pricing power. Gains on both counts could sustain going ahead, given the ongoing costcutting efforts and price hikes.

With recovery gathering pace amid receding Covid cases, Amit Agarwal of Kotak Securities expects a bounceback in the automobile, consumer durables, pharma, retail, and food & beverage industries. This should lead to an increase in demand for express delivery services in the business-to-business or B2B segment, which accounts for 75-80 per cent of Blue Dart’s revenues.

While B2c/e-commerce remains a high growth area and fetches about 18 per cent of the company’s revenue, competitive pressure remains high with the company not having much success in expanding its share in this segment.

Though brokerages expect earnings to grow at over 30 per cent in the FY21-24 period, investors should await volume recovery and margin trends before considering the stock. Since its lows in August last year, the Blue Dart scrip has grown by over 3 times.