Blue Dart, the express major, has recorded a 22% drop in net profit for FY02, on the back of 210 basis points drop in operating margins. The drop in operating margins is despite a fall in ATF prices. Having said that, 12% growth in revenues is encouraging considering the backdrop of economic slowdown. The company recently acquired two south based courier companies to consolidate its position in South India.
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The drop in operating margins could be partially explained due to commissioning of the third aircraft. 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.
Blue Dart has an exclusive tie-up with world leader FedEx. Under this agreement, Blue Dart is the exclusive provider of transportation, pickup and 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. There has not been any announcement by the company on this front.
At the current market price of Rs 77, the stock is trading at 10x its FY02 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 negatively impact the company's financials. The company's relationship with FedEx would also be closely watched by the market and the stock price of the company would move based on this announcement. In case of non-renewal of agreement, the stock price might see a further downward pressure.
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