BUY
Market price : Rs 210
Market Cap : Rs2.6bn
52week H/L : 313/150
Average Vol : 22771

Blue Dart is a dominant player in the domestic courier industry with a market share of nearly 38%. Over the years the company has put up a formidable infrastructure in place. It owns aircraft’s and has a fleet of nearly 1800 vehicles that help it service 1200+ destinations.

Tie up with FedEx to service global clientele. Blue Dart shares a very comprehensive relationship with world courier major FedEx to service the latter’s global clientele. It has an exclusive tie-up for pick up and deliver of shipments from India for a period of five years. Blue Dart works with FedEx electronically to manifest all their shipments. The company also works with FedEx global agents on track and trace in custom held shipments. It manages FedEx key world shipping centers and fully branded vehicles.

Business to grow by between 15%- 20% per annum. The organized courier companies are slated to grow at around 15%-20% p.a. over the next three years backed by higher shipments of products both in the document and non-document segments.

In the non-document segment, sectors such as information technology (computer hardware, networking systems etc), pharmaceutical and office automation are expected to witness strong growth in shipments.

In the documents segment financial services related products like credit cards, debit cards and ATM cards are lucrative segments because of better rates and growing volumes.

It is difficult for the unorganized players to penetrate the non-document and the financial services business because of lack of necessary infrastructure. They will continue to operate in low-end document segment where the market is highly fragmented. Given Blue Dart’s inherent strengths we believe that the company is also likely to grab market share at the expense of some of the larger courier companies and grow at a faster rate.

Value added services on the rise. Blue Dart has started providing value-added services like logistics management, supply chain management and warehousing facilities to its clients. Going forward demand for such services from corporates is likely to grow at a fast clip. This is because by outsourcing such services to third party service providers they would be able to cut down on costs and improve their efficiency levels. For the courier companies such services would be part of the overall value proposition they would be offering their clients apart from the normal pick up and delivery. Such services have the potential for enhancing the margins of courier companies like Blue Dart. We believe that Blue Dart is best equipped to capitalize on the growing opportunities in the emerging areas of warehousing and supply chain management.

Third aircraft will foster growth and improve margins. Blue Dart Aviation has imported the third aircraft in January’2001 to support the parent company’s growth plans. This is a part of the company's expansion drive to improve infrastructure to support the incremental demand from its customers. The addition of the third aircraft should improve the operational parameters of Blue Dart because it will lower the incidence of freight handling charges that it was paying to other domestic airlines. It would also enable Blue Dart to handle higher volumes of shipments. Currently the third aircraft is operating at a payload capacity of around 90%.

100% FDI should not affect Blue Dart. The government’s recently announced directive of allowing 100% FDI in courier services should not affect Blue Dart. This is because over the years the company has developed a very strong infrastructure, which would be very difficult for foreign players to duplicate It would make more sense for a foreign player to acquire an equity stake in Blue Dart rather than to set up a facility from scratch.

Q4 FY 01 results have been excellent. In Q4FY01, sales and net profit of the company have grown by 25% yoy and 104% yoy respectively backed by higher volume of shipments, improvement in product mix and increase in the overall efficiency levels. As a result operating margins have expanded from 12.5% in Q4 FY 00 to 16.2% in Q4 FY 01.

Free cash flow will be used to de-leverage. The company does not have any major capex plans on the anvil. Instead the company now plans to leverage the assets built up over the years and generate returns. Hence the free cash flow will be used to de-leverage. The company has targeted to become debt free on term loan borrowings in FY 02. Savings in interest cost will propel earnings growth further.

Blue Dart is trading at 5.9x FY 02 earnings. The company recently declared a 1:1 bonus issue, which to a great extent will tackle the liquidity problem. Given the company’s dominant position in the industry and its ability to capitalize on emerging segments such as logistics and e-commerce we believe that the company would continue to show robust growth rates in the future. At the current price the stock appears cheap on every valuation metrics. We believe that the stock might weaken from the present levels due to panic selling by investors on the back of government’s approval to allow 100% FDI in courier services. Such weakness should be used as an opportunity to BUY into the stock