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Blue Dart: Growth story continues - Views on News from Equitymaster
 
 
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  • Jul 24, 2001

    Blue Dart: Growth story continues

    Blue Dart, the express major has once again recorded a better than expected performance. Though revenues have increased by 22% in 1QFY01, operating margins have slipped 130 basis points. The drop in operating margins appears due to commissioning of the third aircraft. What is encouraging is that Blue Dart Aviation, the wholly owned subsidiary of the company has come out of the red. Blue Dart has an aircraft leasing agreement with this subsidiary.

    (Rs m) 1QFY01 1QFY02 % Change FY01
    Sales 564 686 21.6% 2,562
    Other Income 1 1 - 5
    Expenditure 485 599 23.3% 2,152
    Operating Profit (EBDIT) 79 87 10.5% 409
    Operating Profit Margin (%) 14.0% 12.7% 16.0%
    Interest 30 25 -16.9% 100
    Depreciation 12 13 11.9% 56
    Profit before Tax 38 50 32.1% 258
    Extraordinary Income - - -  
    Tax 9 13 38.9% 28
    Profit after Tax/(Loss) 29 38 29.9% 230
    Net profit margin (%) 5.1% 5.5%    
    No. of Shares (eoy) (m) 11.9 11.9   11.9
    Diluted Earnings per share* 9.7 12.7   19.4
    P/E (at current price) 13.7   9.0
    (*- annualised)        

    Thanks to the company's own aircrafts the variable costs of the company are amongst the lowest in the industry. Any rise in volumes after breakeven point generates incremental higher profits for the company. Blue Dart's third aircraft has begun operation from January'01 and the company is confident of achieving sufficient loads for the third aircraft. As the capacity utilisation for this third aircraft increases, the operating margins of the company are likely to show a substantial improvement. Blue Dart has initiated planning for the acquisition of a fourth aircraft. If everything goes as planned the fourth aircraft should start operations in a couple of years.

    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.

    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 2002.

    Blue Dart is one up on competition as it offers dedicated air infrastructure coupled with countrywide surface network to compliment the airline service. Blue Dart own aircraft infrastructure enables it to offer its 10:30 am, unique selling proposition, whereby the company assures delivery next morning (latest by 10:30 am) through its dedicated aircraft infrastructure.

    At the current market price of Rs 174, the stock is trading at 8x its FY02 expected earnings on a consolidated basis. With additional nfrastructure in place and expansion of operations to new routes the company is expected to maintain its growth pace in future.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 2002 deadline for the review of agreement approaches near.

     

     

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