Investing In aviation To Aid Blue Dart Expansion.

News Clip : The Asian Age, Mumbai.

23th July, 2003.

Blue Dart has posted a healthy topline as well as bottomline growth for the first quarter of the FY `04 backed by an improving economic scenario. While the company would still strongly focus on the domestic market, strengthening the aviation fleet would help it in expanding operations to other South Asian countries. We believe that given the kind of infrastructure as well as business model that the company has put in place the valuations appear to be quite attractive. We recommend investors an exposure to the scrip as the true growth potential of the company is yet to unfold.

Industry Scenario
In five of the past seven years. listed courier companies have logged 20-plus per cent growth. The aberrations were 1998 and 1999, when there was an economic slowdown. Currently estimated at Rs 1,400 crores (the organised sector accounts for 64 per cent of this), the industry is expected to grow to Rs 3,000 crores by 2005. The domestic market is more attractive than the global market as the domestic to international business ratio is 44:56. Going forward, e-commerce and third party logistics are expected to be the growth drivers in the longer term and express companies are gearing themselves up to offer these services.

South In Focus
Blue Dart Express is proposing to inject $3m in FY `04 in order to expand its operations in the south. These include increasing the number of offices by 12 and regional service partners by seven. Blue Dart has 49 offices, 21 regional service partners and 55 franchisees in the south. The expansion plan would be in emerging business centres in the south, such as Vellore, Cuddalore, Nellore, Trichur, Rajamundri,Warangal, Devangiri, Bellary, Sivakasi, Tirunelveli and Kottayam.

Investment In Aircraft To Fuel Growth
Blue Dart has bought an aircraft for $5m through its subsidiary Blue Dart Aviation Limited. This takes its fleet of Boeing 737 freighter aircraft to four. Downturn in the global airlines industry helped Blue Dart save close to $1.5mn in the recent purchase of its fourth Boeing 737, which would have otherwise cost nearly $ 6.5 mn. With the acquisition of the new aircraft the company could consider further route expansion into neighbouring countries.

Revenues Clock A Growth Of 5.40%
BDE's revenues clocked a growth of 5.40 per cent in Q1 `4. Sales increased from 77.81 crores in Q1 `03 to Rs 82.01 crores in Q1 `04. However, the company has actually posted a turnover growth of 18 per cent since Q1 `03 figures include service income which BDE used to earn from its previous international alliance (FEDEX). Operating margins have improved from 15.8 per cent in Q1 `03 to 16.6 per cent in Q1 `04 on account of cost efficiencies.

Interest Cost Under Control
The company has brought down its interest cost from Rs 2.67 crores to Rs 1.56 crores in Q1 `04. It has earmarked $8 mn capex for FY`04, which would be funded by both internal accruals as well as debt.

Margin Expansion Furthers Profitability
The increase in the operating profit together with interest cost savings pushed net profit growth to 29 per cent for Q1 `04. Net profit improved from Rs 4.69 crores in Q1 `03 to Rs 6.05 crores in Q1 `04.

Valuations
At the CMP of Rs 87 Blue Dart quotes at a PE of 7.79x for its FY `04E earnings per share. It also quotes at an attractive market cap/sales ratio of 0.57 based on its FY `04E sales.

Risk :Any sharp rise in the oil prices and ATF is a key concern area as fuel prices are closely co-related to the company's profit performance given its high operating leverage.

BDE has introduced a `fuel surcharge' mechanism and given the decline in fuel prices over the last quarter. We do not expect any pressure on earnings for FY `04 at least.

Growth: The main drivers or areas identified by the company for future growth prospects include the financial, retail, IT pharmaceuticals, garments and electronics sectors.

The company's investment in warehouse infrastructure, aircraft and technology would also help it establish itself in the third party logistics arena, where entry barriers are quite high. The third party logistics segment is expected to be one of the major growth drivers in the courier industry in time to come.