Will the tie-up with DHL improve Blue Dart's prospects?

News Clip : Intelligent Investor

Monday, 30th September 2002

- Cyrus Irani, on e-mail

Blue Dart and FedEx have parted ways, as expected. Beginning October, Blue Dart's international shipments will be handled by DHL Worldwide Express-the market leader in the courier industry-for five years. However, this shift in partner won't lead to a significant change in Blue Dart's prospects. The company's business profile is anyway skewed towards the domestic segment-its domestic-to-international business ratio has changed from 45:55 in 1995-96 to 82:18 currently. In terms of reach too, the incremental gain is only marginal-DHL

BLUE DART

• Recently changed its international partner from FedEx to DHL


• Ensures continuity in overseas segment (20% of total business)


• Buy the stock for its leadership position in the domestic market

Worldwide covers 227 countries, while FedEx does 211 countries (the difference ostensibly covers low-volume destinations). What the tie-up does is give Blue Dart continuity in servicing international destinations. Flying high. Since DHL has a domestic presence of its own (through its Indian subsidiary, DHL Worldwide Express India), it does raise the question of a conflict of interest. However, a business agreement between DHL and Blue Dart, similar to what the latter had with FedEx, puts to rest any such fears. The two partners have agreed not to poach the other's clients, while competing for new business. As for DHL picking up an equity stake in Blue Dart, my guess is as good as yours at this stage. There was similar peculation about Fedex, its earlier partner of 18 years.

The bottomline is that the change at Blue Dart is mostly cosmetic, not material. The company's remains investment-worthy for the manner in which it is consolidating its leadership position in the domestic market, where it services around 13,000 locations across the country. It's the only Indian courier company with its own aircraft (which reduces dependence on airlines). Its focus on lower weight, nondocument packages (where the margins are higher) has enabled its aviation operations to break even. For the first quarter of fiscal 2003 (April to June). Blue Dart recorded an increase of 13.6 per cent in income and 20 per cent in net profit, aided by a 20 per cent drop in interest cost. At its current price of Rs 75, the stock trades at around 10 times its fiscal 2002 earnings. Stay invested.