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  • Stock recommendation: Bluedart Express Ltd – SELL – TP Rs.3215

    Publish date: 1st August, 2018


    Result Update

    Bluedart has reported weak set of numbers for Q1FY19, post strong quarterly performance in Q4FY18. We attribute the current quarter's performance to a challenging environment with slowing business growth, hyper-active competitive pressures in B2B and B2C, increase in fuel prices, introduction of GST and initial hiccups in e-way bill implementation.


    Key Highlights

    • Sales was in line with expectation at Rs 7.32 bn (+9.9% YoY). However, operational performance of the company was under pressure on account of increase in freight (including fuel) and Employee cost. Freight and handling cost was high for the company during the quarter at Rs 4.86 bn (+12.9% YoY) primarily due to increasing fuel prices, which we believe the company was not able to pass on to customers completely. The employee cost was higher during the quarter at Rs 1.32 bn (+12% YoY) due to year end provisioning of hikes and variable pay by the company
    • Other income and depreciation cost were stable for the company, while interest cost has fallen with one-third redemption of debentures in Q3FY18. Lower tax provisioning net of tax adjustment of prior period supported the PAT. Consequently, company reported PAT of Rs 220 mn (-35.7% YoY) which was below our expectation of Rs 350 mn. We consider the current quarter's performance as weak.

    Valuation & outlook

    Bluedart is an undisputed market leader in the air express segment, with a dominant market share of ~50%. It is also a strong player in the ground express cargo segment with a market share of ~13%. A fresh strategy under the observation of Mckinsey, implementation of GST and above normal growth in the ecommerce segment are expected to keep the growth momentum healthy for BLUEDART. However, competition and increasing fuel prices have deflated operational performance on a sustained basis including the current quarter.

    We believe that, the company would find it difficult to pass on the increase in fuel prices and other cost and charge a significant premium for its services to other courier companies.  We have also seen a slowing trend of business flow from e-commerce companies to private courier companies. We see the changes as structural in nature which is consistent with our view of crude touching $80 to $90 in medium term. In lieu of this developments, we have lowered our earnings and target multiple accorded to Bluedart. We are now recommending a SELL on Bluedart with a reduced target price of Rs 3215 (from Rs 4050) at 38 x FY20 earnings (lowered from 40x).

            

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