Blue Dart Express: Buy

Recommendation: Buy

Aarati Krishnan

AN impressive financial performance and bright growth prospects make Blue Dart Express a good investment proposition at the current price of Rs 230. It is trading at a price earnings multiple of around 12 times its latest per share earnings.

The company has announced a bonus in the ratio of 1:1 and the stock could attract some buying interest in the run-up to the record date.

Suitability: The stock appears to hold potential for moderate to high capital appreciation over a three-year period. However, the stock is volatile and carries a high measure of risk. The investment is suitable only for investors with a high risk-taking ability.

Profile: Blue Dart Express has a 38 per cent share of domestic express services. The company is present in practically every segment of the logistics business, documents, non-documents, cargo and logistics. After a restructuring of its existing agreement with Federal Express in 1997, Blue Dart has become a Global Service Participant of FedEx. As a result, Blue Dart no longer has a significant presence in the international express business and instead manages the domestic leg of operations for outbound and inbound traffic routed by FedEx.

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Over the past three years, Blue Dart has managed a dramatic turnaround in its financial performance. The company reported net profits of Rs 23.03 crore in 2000-01, a 87 per cent improvement over the previous year. This is a a quantum improvement from 1997-98 when the company reported a net loss of Rs 2.65 crore. Revenue growth improved from 8 per cent in 1997-98 to 25 per cent in 2000-01.

Over the past five years, Blue Dart has made substantial capital investments in infrastructure. Apart from commissioning a superhub at Mumbai airport and acquiring three dedicated aircraft to fly cargo, the company has also made investments in systems and back-office infrastructure to network its offices throughout India.

With these investments now beginning to pay off, Blue Dart's return parameters have shown a dramatic improvement. While the company's leverage has fallen, its return on net worth has improved from a negative figure in 1998 to a respectable 21 per cent in March.

Over the past couple of years the company also aggressively expanded its domestic network through new franchisee agreements, alliances with strong regional couriers and inter-line arrangements with major airlines.

Outlook: Given its focus on corporate clients, growth prospects for Blue Dart hinge on overall levels of economic activity. The distinct slowdown in industrial growth is a cause for concern in the near-term. However, for Blue Dart this could be compensated by the sustained good performance on the export front. India's exports overshot targets to grow by 20 per cent in the 2000-01 fiscal. Since this growth is being driven largely by categories such as marine products, floriculture, engineering and leather products, business volumes for express companies such as Blue Dart could continue to sustain healthy growth rates.

With Blue Dart's only other national competitor, Elbee Services, recovering from financial problems of its own, Blue Dart appears to face limited challenges to its market share in the domestic business. The substantial infrastructure requirements could act as an entry barrier to new players in this business. Business opportunities such as supply chain management, product distribution management and logistics solutions could continue to pep up Blue Dart's margins in a difficult environment.