Blue Dart, the express major has recorded a 10% drop in net profit for 3QFY02, on the back of 180 basis points drop in operating margins. The drop in operating margins is inspite of fall in ATF prices. Having said that, a 10% growth in revenues is encouraging considering the backdrop of economic slowdown. The drop in operating margins could be partially explained due to commissioning of the third aircraft. Post bonus issue last year, the company's equity capital has doubled.
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The third company owned aircraft has become operational from January last year. Thanks to the company's own aircrafts, the variable costs of the company are amongst the lowest in the industry. However, on the flip side, a lower capacity utilisation could lead to a drop in the operating margins. The company seems confident of achieving full capacity utilisation for its third aircraft. Any rise in loads after breakeven point would generate incremental higher profits for the company.
The domestic business of the company currently accounts for 80% of the business while the international business accounts for the balance. The domestic business is more lucrative for the company, as in the international business the company has to operate on a cost-plus basis. International business however, helps the company in leveraging the existing infrastructure to generate more revenues.
Blue Dart has an exclusive tie-up with world leader FedEx. Under this agreement, Blue Dart is the exclusive provider of transportation, pickup & delivery, customs and related services for FedEx's international priority shipments, as well as the sole preferred consolidator of FedEx services. The agreement is supposed to be reviewed in the current year.
At the current market price of Rs 70, the stock is trading at 7x its FY02 expected earnings on a consolidated basis. With additional infrastructure in place and expansion of operations to new routes the company is expected to perform better going forward. The flip side however, is that any increase in aviation turbine fuel (ATF) prices would have negative impact on the company's financials. The company's relationship with FedEx would also be closely watched by the market as the agreement with FedEx would be reviewed in the current year.
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