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Blue Dart Express: A well run company forging ahead - Outside View by Luke Verghese

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Blue Dart Express: A well run company forging ahead
Aug 2, 2013

An express train which is gathering speed as it journeys forth

(The results of the year are not strictly comparable with that of the preceding year as the financials for the latest year are for 15 months against 12 months for the preceding year).

An extraordinary dividend

The most illuminating part of the company's performance during the year was in the dividend declaration. The company declared a dividend of Rs 71 per share (face value Rs 10) against a dividend of Rs 2 per share in the preceding year. There appears to be no rationale behind this bizarre decision (the shareholders are not complaining) though the company states that after analysing the financial position and keeping in mind future growth and expansion and adequate investment.....etc over a period of time the directors are pleased to recommend the dividend. More strangely, the decision came on the back of the company reducing its foreign promoter shareholding (DHL Express Singapore Pte Ltd-the ultimate holding company is Deutsche Post) from 81% to 75% during the year through an offer for sale at a price of Rs 1,949 per share. The issue of capital was made to comply with the new listing guidelines issued by SEBI of a minimum 25% public holding in listed companies. The paid up share capital remains intact at Rs 237 m, but the capital is buttressed by humungous reserves and surplus of Rs 6.26 bn. It appears to be the company's way of compensating the new shareholders for the huge premium that they paid on the shares that they subscribed to. The hike in dividend payment involves an outflow of Rs 1.97 bn (for 15 months) including dividend tax against Rs 55 m previously.

Operating at full tilt

Blue Dart Express is operating on Cloud 9 for sure if that is the right metaphor. The company claims it is South Asia's number one express air and integrated transport, distribution and Logistics Company. According to its internal estimates it is a dominant leader in the domestic air express industry and commands a 49% market share in the organised 'air' express market in 2012. In the ground segment the company garnered a market share of 13.3%. In the latest accounting year it continued its focus on strengthening its reach into Tier II and Tier III cities as a part of its outreach programme. The total number of facilities at year end numbered 413 at year end against 359 in the preceding year end.

Between the five years 2008 and 2012-13 the company has grown and how! The income from operations has grown from Rs 9.7 bn in 2008 to Rs 17.3 bn (on an annualised basis) in 2012-13. This is barring the all round blip in performance in 2009. Including other income the total income has grown from Rs 9.8 bn to Rs 17.6 bn in the latest year. The gross profit before depreciation and taxes has grown from Rs 1.35 bn to Rs 2.44 bn over the same time span. The profit after tax similarly has grown from Rs 774 m to Rs 1.5 bn. The paid up equity capital is static but the reserves and surplus have soared to a new high.

A fine balance sheet

Not surprisingly the company possesses a fine balance sheet at year end with oodles of surplus cash to boot. It is debt free quite naturally, and makes do with a gross block of Rs 3.9 bn consisting of both tangible and intangible assets. In the gross block the non depreciated gross value of the aircraft slipped by Rs 227 m to Rs 300 m during the year. The gross value of aircraft components and overhaul amounted to Rs 205 m, and the gross value of the engines amounted to Rs 109 m. Thus the total value of aircraft including the paraphernalia amounted to Rs 614 m. The directors' report states that in the air it has a mixed fleet of Boeing 737 and Boeing 757 freighters. Given the gross value of the aircraft in its books, the company per-se cannot be having that many aircraft of its own to start with. Besides, the aircraft engines that it possesses appear to be fully depreciated. Further, the aircrafts and the other bits and ends of similar ilk that it possesses also appear to be substantially depreciated.

As I stated earlier it has oodles of cash. Not knowing quite what to do with the cash, it dished out quite some moneys to its associate company-Blue Dart Aviation. At year end the outstanding loan amounted to Rs 2.27 bn against Rs 2 bn previously. The company gets its interest tithes on the moneys that it has advanced. The maximum amount due from Blue Dart Aviation during the year was slightly higher than the year end figure. Blue Dart also has an investment of Rs 183 m in the equity of Blue Dart Aviation. (The shares were acquired at a price of Rs 15.5 per share on a face value of Rs 10). To round out the picture it had a cash hoard of Rs 2.36 bn at year end against a balance of Rs 375 m previously. (The increasing cash riches may have prompted the company to get rid of some of the moolah in the form of shareholder gratification). Not for nothing that the company earned considerable sums from it investments. Dividends from mutual funds totalled Rs 95.3 m (the company bought and sold units worth Rs 44.0 bn during the year), interest on loan to Blue Dart Aviation of Rs 262 m, interest on ICDs of Rs 5.4 m, and, interest on deposits with banks of Rs 11.8 m. But the overall 'other income' receipt of Rs 394 m amounted to 15% in the pre-tax profit figure of Rs 2.71 bn.

The company is also able to collect its trade dues fairly easily, though the trade payables at year end were sharply lower than the figure of trade receivables. The current assets at year end --shorn of the cash hoard --were lower than that of the current liabilities. The cash flow statement bears out the comfortable working capital situation that the company makes do with. With net cash inflow of Rs 1.8 bn from operations, and further inlays from other income flows, there was plenty of money to toy around with. The capex programme accounted for an outflow of Rs 420 m, so the company decided to lend some more to its poorer country cousins.

Siblings and associates

The company make do with one wholly owned sibling Concorde Air Logistics Ltd as also three fellow siblings DHL Express India Pvt. Ltd, DHL Logistics Pvt. Ltd and Skyline Air Logistics Ltd, and, the associate company Blue Dart Aviation. The company has a 49% stake in Blue Dart Aviation. Why has the investment been kept at this strategic level please - given the acute stake that it has in this company in the form of equity, revenue transactions and loans etc. And, besides, who is the holder of the balance 51% equity? And, should not the majority shareholder be advancing the loans in the first place please? Blue Dart had revenue interactions during the year with all barring Skyline Air Logistics. The largest interaction by far was with Blue Dart Aviation. The company paid out a wholesome Rs 7.1 bn to the latter for 'air charter service' cost. This company appears to be the owner of the bulk of the air transport fleet or something. Blue Dart also paid out Rs 1.07 bn to DHL Express India for 'international servicing cost' and received in turn 'domestic service charges income' of Rs 648 m from the latter. (So Blue Dart Express and the group entities are overtly interdependent on each other to earn their succour.)

Concorde Air Logistics Ltd, though of puny size is a standalone entity in its own right. On gross revenues of Rs 57.8 m it earned a pre-tax profit of Rs 28.7 m. This pre-tax profit is inclusive of other income of Rs 5.8 m. The logistics industry appears to be a high value added biz or something. The parent acquired the shares in this sibling at a per share price of Rs 133 on a face value of Rs 10. On a paid up share capital base of Rs 1.1 m it boasted respectable reserves and surplus of Rs 71 m. As would be expected it is debt free and had surplus cash of Rs 51 m at year end. This company appears to be a total flunky of the parent or some such. There is a discrepancy here in the notes to the accounts. The notes to the accounts states that it recovered Rs 563 m from the parent towards air freight etc during the year. This figure tallies with the notes of the parent. But this figure is infinitely more than its revenues of Rs 52 m for the year. How can this be? Or, have I missed the point? The company has not paid any dividend on the specious ground that the directors' wish to strengthen the financial position of the company and hence the rain cheque in the matter. The company could definitely have thought of a more dubious excuse please!

Whatever be the minor nitpickings this is one company which is on a roll.

Disclosure: I do not hold any shares in this company, either directly, or under any non discretionary portfolio management scheme

This column Cool Hand Luke is written by . Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.


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