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MOSL: BLUE DART EXPRESS (Neutral)-Volume growth strong; high fuel costs hurt margins

• Blue Dart Express (BDE) reported a healthy revenue growth of 50% YoY to ~INR12.9b in 1QFY23 (est. INR11.6b), driven by higher growth in the Surface and e-commerce segments. Realizations were flat despite the sharp increase in fuel costs due to a change in product mix towards heavier parcels and increase in share of surface express. The e-commerce segment continued to do well and management expects the momentum to sustain.
• EBITDA margin stood at 14.7% in 1QFY23 (est. 16.0%), 510bp higher YoY but 394bp lower QoQ. Sharp increase in Air Turbine Fuel (ATF) prices coupled with increase in employee costs hurt margins QoQ.
• BDE is expecting demand to be strong going forward and is looking to add two aircraft in its fleet by end-FY23E, which should increase its capacity by ~20%. Management expects margins to sustain at current levels. We raise our FY24 EPS estimate marginally by 4%, factoring in stronger volume growth. We maintain our Neutral rating on the stock with a revised TP of INR8,380 (premised on 20x FY24E EV/EBITDA).

 

Robust volume growth in 1QFY23; to incur capex for aircraft addition

• BDE witnessed a healthy (+51% YoY) volume growth by carrying 278.4kt in 1QFY23 (v/s 184.4kt in 1QFY22). The ground express segment has been growing very well and it constitutes around one-third of the business.
• Capacity utilization is currently at ~90% level. The company is looking to add two Boeing 737 aircraft with a capex of INR3-3.5b towards the later part of FY23 to cater to the increasing demand for Air express. The two aircraft would be of 18 tonnes capacity (existing aircraft are 30 tonnes capacity) to cover Tier II & Tier III cities.

Highlights from the management commentary

• BDE has a fuel surcharge mechanism in place to hedge against the rising ATF price. Usually there is a lag of a month for the pass through.
• The gross margin has contracted QoQ in 1QFY23 because of: a) a change in the product mix, and b) high ATF prices.
• Ground express is growing faster than Air, with high double-digit growth for Ground v/s high single-digit growth for the Air segment.
• Going forward, management expects EBITDA margin to be at the current level with a variance of 100bp depending on the movement of ATF price.