Company Update September 20, 2016
Rating matrix Blue Dart Express (BLUDAR) | 5540 Rating : Buy Target : | 6500 Leveraging its routing; leadership continues… Target Period : 12 months Potential Upside : 17% We recently met the management of Blue Dart Express Ltd, a preferred
logistics express service provider across industries on the Air, Ground What’s changed? and e-tailing segments. The company continues to command its market Target Unchanged leadership in the organised air express market with ~46% market share. EPS FY17E Unchanged With addition of a freight aircraft in FY16, Blue Dart now operates a fleet EPS FY18E Unchanged of 6 Boeing 757-200 freighters and manages daily dedicated services of Rating Unchanged ~504 tonnes. This dedicated aviation and ground infrastructure enables
BDE, provide its customers end-to-end express services from a document Key financials to a charter load. The management candidly indicated that the key to their | Crore FY15 FY16 FY17E FY18E success in air freight business is their routing plan which has remained Net Sales 2,272 2,565 2,625 3,019 unchanged since 1996. BDE intends to remain a market leader in air EBITDA 224 382 369 460 express market; however it desires to increase its market share (currently Net Profit 127.2 193.0 189.7 238.0 at 13%) in the organised surface express market. With a growth multiple EPS 54.4 81.2 79.8 100.2 of ~1.5x of the GDP and ~2x of the GDP attached to air express and Valuation summary ground express, we believe that BDE is well positioned to capture the FY15 FY16 FY17E FY18E incremental growth. In addition to the economic revival, passage of GST st P/E (x) 112.1 67.7 68.9 54.9 bill which is expected to be implemented from 1 April 2017, would bring Target P/E (x) 121.4 80.0 81.4 64.9 in operational efficiencies for BDE. EV/EBITDA (x) 64.3 34.5 35.6 28.8 Grappling the e-tailing opportunity from maturing to mature… P / BV (x) 46.4 31.6 26.4 21.9 India's ecommerce retail market which was earlier estimated to grow at a RONW (%) 41.4 46.6 38.3 39.9 ROCE (%) 27.6 35.9 34.1 38.2 faster clip (>50% CAGR) is now expected to grow much lower (~25%). Albeit growth, the GMV run-rate has fallen to $13 billion in the recent Stock data quarter as compare to $14 billion in January-March 2016 and $17 billion Particular Amount in the last quarter of 2015. The discounting guidelines from Department of Market Capitalization (| crore) 13,163 Industrial Policy and Promotion (DIPP) have impacted the lucrativeness of Total Debt (FY16) (| Crore) 392.2 the e-tailing segment. Logistics market in e-tailing is segmented across 4 Cash (FY16) (| Crore) 288.2 parts. This includes First Mile, Fulfillment Centre, Line Haul and Last Mile. EV (| Crore) 13,267.1 Line Haul and Last Mile are considered as the main arenas for e-tail play. 52 week H/L 7900 / 5275 However, Reverse Logistics and special deliveries are also emerging as Equity Capital (| Crore) 23.8 newer services. Blue Dart which offers services across the segments Face Value (|) 10.0 qualifies as a one stop solution for e-tailing deliveries.
Stock data Inimitable infrastructure, pan-India presence; competitive edge 1M 3M 6M 12M With a fleet of 6 freighter’s and express support vehicles of 9185 vehicles Transport Corp. 7.3 23.1 36.2 54.5 (outsourced), BDE covers over 34267 locations. The company leverages Blue Dart Exp. 0.4 -5.9 0.2 -22.0 its pan India reach via 21 ground hubs and 250 network routes. This Gati -8.8 -8.2 27.1 0.2 widespread infrastructure enables the company to have a competitive advantage over existing domestic players and new entrants. As per the Price Movement management the captive logistics companies for e-commerce players to 10,000 9,000 the likes of e-kart, Gojavas, etc, would continue to co-exist in the logistics 9,000 8,000 ecosystem. However, given their capabilities and scalability, these players 8,000 7,000 would remain regional in nature. Subsequently, with the Pan India reach, 7,000 6,000 BDE would continue to remain the preferred logistic partner for catering 5,000 6,000 4,000 to Tier II and Tier III cities. We continue to believe that BDE network 5,000 3,000 continues to enjoy the uniqueness as compared to its peers and thus 4,000 2,000 command the valuation premium. 3,000 1,000 2,000 0 Margin traction along-with growth; GST to enhance valuation… Aug-13 Mar-14 Nov-14 Jun-15 Jan-16 Sep-16 With the economy set up to gather steam, BDE coupled with a strong Price (R.H.S) Nifty (L.H.S) balance sheet and close to debt-free capital structure is well equipped to ride out the next growth cycle triggered by GST implementation. Also, as
Research Analyst the economy improves, given its strong client base, BDE business model provides earnings visibility. We believe growth will accrue gradually over Bharat Chhoda [email protected] a time frame and hence continue to value BDE on DCF model arriving at a Ankit Panchmatia target price of | 6500 with a BUY recommendation. ankit.panchmatia @icicisecurities.com
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Company Analysis Unparalleled network and robust infrastructure catering across India Blue Dart Express (BDE) founded in 1983 and global logistics major DHL acquired a stake of 81.03 % in 2005. In 2012, DHL diluted ~6.03% stake in BDE through an offer for sale to comply with the SEBI requirement of minimum public holding of 25% for listed corporates. BDE is India’s premier integrated package distribution company, amid presence over +34000 locations domestically and 220 countries worldwide. BDE has two key subsidiaries namely Concorde air logistics ltd and BlueDart Aviation Ltd (BDA) with 100% and 74% stake respectively. BDA is the only scheduled cargo airline in India providing express cargo services to BDE. Blue Dart has always been a frontrunner in pioneering technology to empower customers with innovative solutions and a superior customer service.
Exhibit 1: Admirable ramp up in the operational capabilities… 2012-13 Particulars 2011 2013-14 2014-15 2015-16 (15 months) Tonnage ('000) 423 594 513 559 596 Shipments ('000) 100 142 127 141 160 Facilities 365 413 439 477 515 Area ('000 sq. feet) 1868 2056 2193 2570 2983 Retail Stores 274 307 330 582 586 Employees 7792 8258 8860 9969 10000+ Vehicles (outsourced) 6272 7457 8685 8185 9185 Source: Reuters, ICICIdirect.com Research
BDE has the distinction of one of the most extensive domestic coverage network with over +34000 service locations. BDE has dedicated aviation system with 6 freighters having a daily haulage capacity of 504 tons together with 7 air network stations across metro cities. In the ground segment, BDE applies a combination of hub and spoke and centipede model. The ground express segment has a robust fleet size of ~9200 vehicles with 274 touch points servicing 166 network routes and 20 ground hubs. Extensive reach coupled with optimized flight scheduling ensures superior transit time thereby improving customer value proposition. Amongst its peers BDE has double the coverage as compared to its nearest competitor (Fedex). Fedex coverage has increased due to acquisition of other Indian logistics companies AFL Pvt. Ltd and Unifreight India Pvt. Ltd, which will help it strengthen its domestic services. Such extensive coverage coupled with time-bound delivery makes BDE an attractive proposition and partner for business transactions.
Exhibit 2: BlueDart leads the way…. BlueDart Fedex India* DTDC First Flight Domestic locations 34000+ 19000 11000+ 6700+ International location 220 220 220 220 Work force 10000+ 7500 5500 15000
Source: Company, ICICIdirect.com Research, * Post acquisition of AFL and Unifreight India
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Upbeat growth in FY16; growth momentum to consolidate in FY17… For FY16, tonnage handled for BDE grew 7% YoY to 595623 tonnes while shipments grew 14% YoY to 160 million. Tonnage growth in FY10-16 grew at 14% CAGR whereas total shipments (including domestics and international) grew at 13% CAGR in the same period. Volume growth in the air express industry was largely driven by a robust outlook in industries like banking financial services & insurance (BFSI), e-commerce, pharmaceuticals and automotive. We believe this volume growth would be supported by an addition of a freight plane to BDE’s fleet in FY16. BDE’s presence in the fastest growing segment of the logistics sector and its dominant position in the air express with continuously expanding presence in the ground express segment would enable it to garner higher tonnage.
Exhibit 3: Tonnage growth momentum to continue 800 721 655 595 596 559 600 513 423 400
200
0 CY11 FY13 (15 FY14 FY15 FY16 FY17E FY18E mths) Tonnage handled (000 tonnes)
Source: Company, ICICIdirect.com, Research
Exhibit 4: Revenue growth to moderate post robust FY16…
3,500.0 3,019.1 3,000.0 2,564.5 2,625.4 2,500.0 2,171.7 2,272.2 1,938.3 2,000.0 1,492.7 1,500.0
1,000.0
500.0
0.0 CY11 FY13E (15 FY14 FY 15 FY 16 FY 17E FY 18E mths) Revenues (| crore)
Source: Company, ICICIdirect.com, Research
The cargo of the air express segment is mostly characterised by high value low weight cargo such as gems & jewellery and high-end consumer goods. In the ground express segment, BDE’s market share improved from 5.9% in FY07 to 13% in FY15. The segment is driven by strong outlook in sectors like auto parts, electrical appliances and healthcare services coupled with growth in the e-tailing segment. As a result, BDE has been able to maintain strong volume growth as it has ~96% institutionalised client base providing considerable volume assurance. Going ahead, we believe that with outsourcing of logistic operations by online retail and other sector clients, express and logistics players will benefit notably.
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Highest levels margins of FY16 seems unsustainable BDE is the leader in air cargo transport with 46% market share, which is considered the premium segment. Further, BDE’s market share in ground improved from 5.9% in FY07 to 15% in FY16. With an improvement in volumes and tonnages, BDE seeks to optimise operating levers. Rationalisation of fixed expenses and route optimisation will bring in higher efficiencies that will gradually lead to margin expansion. The express market has large number of unorganised players that are unable to provide the entire spectrum of services across the supply chain and tend to lose business to quality players like BDE. With every additional value-added service, BDE manages to increase the revenue per package, keeping fixed costs constant. Furthermore, a decline in diesel prices and lower aviation turbine fuel enhance margins by 500 bps to 15% for FY16. However, going ahead, with a rebound in crude prices coupled with lower utilisation levels, margins are expected to moderate. The key catalyst here would be a rebound in the B2B segment, which would enable BDE to expand its margins.
Exhibit 5: EBITDA margin to recover as economy expected to rebound
3500 16 14.9 3019 15.2 14.0 14 3000 2565 2625 2500 2272 12 1938 9.9 10 2000 9.0 8 1500 6 1000 4 382 369 460 500 174 224 2 123 129 193 190 238 0 0 FY14 FY15 FY16 FY17E FY18E
Revenue EBITDA PAT EBITDA Margin
Source: Company, ICICIdirect.com Research
BlueDart Express preferred player in logistics segment Logistics, like retail, is a highly fragmented and unorganised segment in India and providing end-to-end service to upcoming online players remains a challenge. BlueDart Express (BDE) with its dedicated air facilities and ground network is well equipped to cater to the growing needs of online retail players. In 2010, as the online retail market began to see green shoots, BDE derived nearly 3% of its revenue from the e-tailing segment. However, currently, the e-tailing segment contributes nearly 25% of total revenue to BDE’s topline registering a CAGR of nearly 80% in FY10-16. Going ahead, as internet penetration grows; growth in e-tailing segment is expected to be much stronger in tier-II and III cities. Consequently, as BDE expands its network to more pin codes from current 34267; it will be well geared to cater to a large geographical scope, thereby increasing revenue share from the online retail segment.
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Valuation As the economy nears a turnaround, BDE is expected to be one of the foremost beneficiaries in the logistics sector. Its strong institutional clientele and diverse customer proposition such as time definite cargo delivery, temperature controlled cargo movement, etc, virtually ensure consistent cargo volume growth in future. Further, with the growth of online retail industry, the e-tailing segment is expected to show strong growth. E-tailing revenue for BDE increased at a CAGR of ~80% in FY10- 16. As the online segment becomes more vibrant, the revenue contribution from the segment will only be more pronounced. Also, its robust balance sheet with strong cash flow and debt-free capital structure provides a cushion at difficult times. Going ahead, as we expect the economy to gather steam, passing of fuel hikes to customers becomes smoother leading to an improvement in margin. Also, as the central government emphasises on implementation of GST, it is expected to bring a structural change in the sector, as a whole. We believe, as a leading player, BDE is well poised to ride the next growth wave. Following the delay in GST implementation coupled with a slower-than- expected revival in trade activities, we had moderated our phase 1 (FY16 to 18) revenue expectations in our three phases of DCF valuation methodology. We continue to expect phase one growth at 17% CAGR. Further, as GST gets implemented (assuming in FY18) it would take a minimum of two years for the benefits to percolate to the logistics industry together with enhanced revenue contribution from E-tailing segment. Consequently, in our phase two (FY19-25), we expect revenues to grow at 26% CAGR. Subsequently, in the third and the last phase (FY26-30) we anticipate a stable growth period with both revenue and net profit posting 14.5% growth. Subsequently, with an average cost of equity of ~12% over the three phases (Phase-1=11.3%, Phase-2=12.2% & Phase-3=12%) and terminal growth rate of 4.5%, we arrive at a DCF based target price of | 6500 with a BUY recommendation on the stock.
Exhibit 6: DCF based valuation Particulars Amount Average cost of equity (Ke) 12% PV of Phase 1 400.5 PV of Phase 2 1618.6 PV of Phase 3 3616.7 Terminal Growth Rate 4.5% Present Value of terminal cash flow 9,808.4 PV of FCFE 5,635.9 Number of Equity Shares outstanding 2.4 DCF - Target price (|) 6,500 Source: Company, ICICIdirect.com Research
Exhibit 7: Valuations Sales Sales EPS EPS PE EV/EBITDA RoNW RoCE (| cr) Growth (%) (|) Growth (%) (x) (x) (%) (%) FY15 2272.2 17.2 54.4 5.5 115.8 65.9 42.7 28.0 FY16 2564.5 12.9 81.2 49.2 67.7 34.5 46.6 35.9 FY17E 2625.4 2.4 79.8 -1.7 68.9 35.6 38.3 34.1 FY18E 3019.1 15.0 100.2 25.4 54.9 28.8 39.9 38.2
Source: Company, ICICIdirect.com Research
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Financial summary
Profit and loss statement | Crore Cash flow statement | Crore (Year-end March) FY14 FY15 FY16 FY17E FY18E (Year-end March) FY14 FY15 FY16 FY17E FY18E Total operating Income 1,938.3 2,272.2 2,564.5 2,625.4 3,019.1 Profit after Tax 122.6 127.2 193.0 189.7 238.0 Growth (%) 11.6 17.2 12.9 2.4 15.0 Add: Depreciation 27.3 43.6 82.1 86.0 105.7 Aircraft CharterCost 40.0 40.0 37.8 37.8 37.8 (Inc)/dec in Current Assets -53.4 -29.4 -31.3 -5.5 -76.9 Other Aircraft Expenses 210.6 420.3 322.0 315.1 392.5 Inc/(dec) in CL and Provisions 96.0 53.3 151.9 1.8 -25.2 Fuel Charges 375.0 387.0 372.4 381.2 438.4 Others -7.7 -33.6 0.0 0.0 0.0 Other Operating Expenses 702.2 670.6 641.1 735.1 845.3 CF from operating activities 184.7 161.1 395.6 271.9 241.6 Employee Cost 266.6 321.6 500.9 472.6 543.4 (Inc)/dec in Investments -1.6 -2.2 26.5 0.0 0.0 (Inc)/dec in Fixed Assets -23.2 20.1 -562.5 -100.0 -100.0 Other Expenses 169.8 208.3 308.6 315.1 301.9 Others 37.3 7.3 370.5 204.2 -28.6 Total Expenditure 1,764.2 2,047.9 2,182.8 2,256.8 2,559.4 EBITDA 174.1 224.2 381.7 368.6 459.7 CF from investing activities 12.5 25.2 -165.5 104.2 -128.6
Growth (%) -19.0 28.8 70.2 -3.4 24.7 Issue/(Buy back) of Equity 0.0 4.7 0.0 0.0 0.0 Depreciation 27.3 43.6 82.1 86.0 105.7 Inc/(dec) in loan funds 0.0 332.2 0.0 0.0 0.0 Interest 0.0 11.2 35.5 29.9 29.9 Others -332.4 -463.3 -108.2 -342.2 -121.2 Other Income 49.7 24.6 30.2 34.7 36.5 CF from financing activities -332.4 -126.5 -108.2 -342.2 -121.2 PBT 196.5 194.1 294.3 287.4 360.6 Net Cash flow -135.2 59.8 121.9 33.9 -8.2 Total Tax 63.5 66.9 101.4 97.7 122.6 Opening Cash 241.6 106.5 166.2 288.2 322.1 Closing Cash 106.5 166.2 288.2 322.1 313.9 PAT 122.6 129.3 193.0 189.7 238.0 Growth (%) -20.7 5.1 51.7 -1.7 25.4 Source: Company, ICICIdirect.com Research EPS (|) 51.6 54.4 81.2 79.8 100.2
Source: Company, ICICIdirect.com Research
Balance sheet | Crore Key ratios (Year-end March) FY14 FY15 FY16 FY17E FY18E (Year-end March) FY14 FY15 FY16 FY17E FY18E Liabilities Per share data (|) Equity Capital 23.8 23.8 23.8 23.8 23.8 EPS 51.6 53.5 81.2 79.8 100.2 Reserve and Surplus 619.2 283.5 390.4 473.9 577.7 Cash EPS 63.1 71.9 115.8 116.0 144.7 Total Shareholders funds 643.0 307.3 414.1 497.7 601.5 BV 270.6 129.3 174.3 208.6 250.7 Total Debt 0.0 332.2 392.2 392.2 392.2 DPS 49.9 20.0 40.6 39.9 50.1 Long term Provisions 9.4 14.8 17.6 0.0 0.0 Cash Per Share 44.8 70.0 121.3 135.6 132.1 Other Long term liabilities 0.0 0.0 11.0 0.0 0.0 Operating Ratios (%) Deferred Tax Liability 17.46 10.17 -14.65 9.47 0.00 EBITDA Margin 9.0 9.9 14.9 14.0 15.2 Minority Interest 0.00 0.00 12.39 12.39 12.39 PBT / Total Operating income 9.5 8.5 11.5 10.9 11.9 Total Liabilities 669.8 664.5 832.7 911.7 1,006.0 PAT Margin 6.3 5.6 7.5 7.2 7.9 Inventory days 0.5 0.6 3.0 3.0 3.0 Assets Debtor days 50.2 46.7 45.3 45.0 45.0 Creditor days 20.2 20.6 24.6 24.0 21.0 Gross Block 423.7 386.8 953.2 1,074.7 1,174.7 Less: Acc Depreciation 195.7 171.1 448.8 534.7 640.5 Return Ratios (%)
Impairment 0.0 0.0 0.0 0.0 0.0 RoE 19.1 41.4 46.6 38.3 39.9 Net Block 228.0 215.6 504.4 539.9 534.2 RoCE 22.5 27.6 35.9 34.1 38.2 Capital WIP 8.5 25.4 21.5 22.5 23.7 RoIC 28.7 40.4 57.8 50.7 46.4 Total Fixed Assets 236.5 241.0 525.9 562.5 557.9 Valuation Ratios (x) Non-current Investments 24.3 26.5 0.0 0.0 0.0 P/E 131.8 112.1 67.7 68.9 54.9 Long term loans & advances 235.9 183.0 86.8 91.1 95.7 EV / EBITDA 92.2 64.3 34.5 35.6 28.8 Deferred Tax Asset 0.5 0.6 1.2 1.2 1.2 EV / Net Sales 8.3 6.3 5.1 5.0 4.4 Inventory 2.7 4.0 21.1 21.6 24.8 Market Cap / Sales 8.3 6.3 5.1 5.0 4.3 Debtors 266.7 291.0 318.4 323.7 372.2 Price to Book Value 25.1 46.4 31.6 26.4 21.9 Solvency Ratios Loans and Advances 67.1 71.0 57.8 57.5 82.7 Other Current Assets 0.1 4.8 8.9 9.3 9.8 Debt/EBITDA 0.0 1.5 1.0 1.1 0.9 Debt / Equity 0.0 1.1 0.9 0.7 0.6 Cash 106.5 166.3 288.2 322.1 313.9 Current investments 0.0 0.0 0.0 0.0 0.0 Current Ratio 1.6 1.7 1.5 1.5 1.8
Total Current Assets 443.1 537.0 694.4 734.3 803.5 Quick Ratio 1.6 1.6 1.4 1.4 1.4 Creditors 107.3 128.0 173.0 172.6 173.7 Source: Company, ICICIdirect.com Research Other liab & Provisions 163.1 205.3 302.6 304.7 278.4 Total Current Liabilities 270.4 333.4 475.6 477.3 452.1 Net Current Assets 172.7 203.6 218.8 257.0 351.3 Application of Funds 669.9 664.5 832.7. 911.7 1,006.1
Source: Company, ICICIdirect.com Research
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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
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