South Asia's Premier Express Air and Integrated Transportation & Distribution Company

Blue Dart Express Limited (Blue Dart) is engaged in transportation and distribution of time-sensitive shipments, through a network of integrated ground and air transportation. It is the South Asia’s leading courier and integrated air express package distribution company. Founded in 1983, Blue Dart was acquired by DHL Express Singapore Pte. Ltd. (100% Subsidiary of Deutsche Post AG or DP DHL) in 2005 with 81.03% stake and later, in November 2012, DP DHL diluted 6.03% stake to comply with SEBI requirement of minimum public shareholding. As of December, the stake of DP DHL in Blue Dart stood at 75%.

Blue Dart has an extensive network of 35,000+ locations across India and servicing 220+ countries and territories worldwide through a sales alliance with DP DHL. Through the alliance, Blue Dart benefits from DP DHL’s global reach, cross border specialisation and larger network. Blue Dart operates with its own fleet of six Boeing 757-200 freighter aircrafts, a flotilla of 22,336 vehicles as well as 2,173 facilities and hubs. Since inception, the company has maintained its technology leadership and continues to invest in its technology infrastructure to create differentiated delivery capabilities, products, and solutions for its customers.

Investment Rationale

Undisputed Market Leader in the Express Logistics in India
Blue Dart has a leading market share in domestic air express with a lion market share of 48%-49%. The market share has witnessed a marginal uptick every year which stood at ~45% in 2015. Further, the company is also fast emerging as a key player in the ground express segment and its market share is witnessing a continuous growth from ~13% in FY15 to 16%-17% currently.

Factors such as security infrastructure and upgrades in automation and technology are turning to be most vital aspects in differentiating business. Blue Dart gives a strong emphasis on the technology and is the only Indian air and ground express company that has invested extensively in technology infrastructure to create differentiated delivery capabilities, quality services and customised solutions for the customers. We believe that this gives a competitive edge to the Blue Dart over other players in the industry and this will continue to aid the company to remain a market leader in air express and gain market share in ground express in the coming years.

Source: Investor Presentation

Acceleration in E-commerce to Drive Growth
E-commerce is emerging as a major growth driver for the entire logistics sector around the world. There has been a substantial shift in purchasing behaviour of the consumers over the last couple of years towards e-commerce platforms on account of convenience, easy to pay, quick delivery, large pool of products, among others. This purchasing behaviour has been further boosted by the covid-19 pandemic. In India, e-commerce has transformed the way business is done and the industry is expected to reach at USD 200 billion by 2026 from USD 38.5 billion in 2017 (Source: IBEF). The growth will be supported by the factors such as growing number of smartphone users, higher internet penetration, increasing participation from Tier – II, III and IV towns, increase in preference for shopping online over in-store purchase, among others.

Blue Dart operates through its B2B and B2C segments. Under B2B segment, the company caters to industries such as E-commerce, Lifesciences & Healthcare, Automobile, Consumer Electronics, Banking, Financial Services & Insurance, etc. E-commerce segment is one of the biggest contributors to the company’s revenues and contributes between 20% - 25% of the total revenue. The customers of e-commerce expect and demand various services from e-commerce platforms such as competitive pricing & transit time, enhanced reach, on-time delivery, real-time tracking, reverse pickups/exchanges, various payment options, among others.

Blue Dart provides the most efficient solutions to its e-commerce clients with enhanced ground product (Dart Plus, Speed Trucking), a significant reach of 14,400 pin codes, 24x7 shipment visibility, same day and next day delivery options, open & closed reverse pickups with exchange services and more than 15 payment options in the form of digital wallets, debit/credit cards, UPI payments, etc. Further, it also offers some differentiated services such as time-slotted deliveries, Sunday/Holiday delivers, parcel shops & parcel lockers, etc. We believe that Blue Dart is well positioned to ride the new wave of growth in e-commerce which will contribute in the company’s growth in the coming years.

Unparalleled Integrated Air and Ground Pan-India Network
Infrastructure plays a vital role for any player in the express logistics and Blue Dart has a mammoth infrastructure. It has an extensive network and offers deliveries of consignments to more than 35,000 locations across India. Further, as a part of DP DHL group, the company accesses the largest and most comprehensive express and logistics network, covering more than 220 countries and territories. Blue Dart operates its own fleet of six Boeing 757-200 freighter aircrafts (has seven hubs in all the major metropolitan cities – Chennai, Bengaluru, Hyderabad, Mumbai, Ahmedabad, Delhi, and Kolkata), a flotilla of 22,336 vehicles and has 2,173 facilities/hubs/offices across India. It covers 14,400 pin codes to cater to 98% of India’s business needs. The company’s network gives it a competitive edge over existing domestic players as well as new entrants in the industry.

Consistent and Sustainable Volume Growth
Growth in volume becomes important for any courier company as majority of the costs are fixed in nature. Therefore, growth in volumes indicate growing revenue as well higher operating margins backed by higher operating leverage. Blue Dart’s volume has witnessed a healthy growth in last 5-6 years and posted a CAGR of ~7% from FY14 – FY20. Its operating revenue has grown at a CAGR of ~8% between FY14 – FY21 and operating margins have stood at 20.9% in FY21 compared to 8.9% in FY14.

Blue Dart operates through its B2B and B2C segments. The company has built a strong B2B customer base across diverse industries such as BFSI, pharmaceuticals, medical equipment, consumer electronics, automotive, e-commerce, etc. The growth in economy leads to growth in spending and consumption and logistics facilitates in getting products and services as and when they are needed and desired to the customer. Also, it aids in economic transactions, serving as a major enabler of growth of trade and commerce in an economy. The strong customer base, along with other macro-economic factors such as GDP growth, Indian Government’s ambition of USD 5 trillion economy, infrastructure development, growth in consumption, amongst others, is expected to aid in Blue Dart’s volume growth in medium-to-long term.

Source: Company Annual Reports

Source: Company Annual Reports

Superior Technology Advantage
Blue Dart, since its inception, has maintained its technology leadership and continues to invest in infrastructure to create differentiated delivery capabilities, quality service, and customised solutions for the customers. The state-of-the-art technology such as Weight Dimension Labelling (WDL) for accurate weight measurement and billing, Hand Held Device for speedy delivery information, GPS for real-time shipment visibility and Smart Truck for Intelligent pick-up and delivery, help the company to ensure speed, safety, and accuracy. This is important in a business where majority of the customers belong to the institutional segment and high value shipments are handled.

The company has developed tools, which provide inputs to improve operational efficiency and provide customers with seamless information about their shipments. Recently, the company has launched ‘My Blue Dart App’ which is designed to provide tailored solutions and acts as a one-stop-shop for customers; the app emphasises the company’s commitment to enhance customer experience. The technology-led disruptions will continue to test the business models in the express cargo industry and Blue Dart’s ability to continue to innovate and meet the evolving customer requirements is expected remain key over the long term.

Source: Investor Presentation

Strong Parentage
Global logistics sector is consolidated with top 3-4 players accounting for more than 50% of total industry revenue and Deutsche Post DHL (DP DHL) is the second-largest player in revenue terms as of 2019 (Source: Statista). DP DHL’s global network spans more than 220 countries and territories in which ~1,11,000 employees provide services to around 2.7 million customers. For Blue Dart, DP DHL brings in best international practices, transparency, and good corporate governance. Blue Dart has 48%-49% market share in domestic air express. As part of the DP DHL Group, the company accesses the largest and most comprehensive express and logistics network around the world, covering over 220 countries and territories and offers an entire spectrum of logistics solutions.

Outlook & valuation

Blue Dart is South Asia’s premier express and integrated transportation and distribution company having a mammoth infrastructure/network with its own fleet of six Boeing 757-200 freighter aircrafts, a flotilla of 22,336 vehicles and has 2,173 facilities/hubs/offices across India, which gives it a competitive edge over existing domestic players and new entrants. The company is witnessing volume growth and the momentum is expected to continue further on account its strong customer base across various industries such as e-commerce, BFSI, pharmaceuticals, consumer electronics, etc. along with other factors such as GDP growth, Indian Government’s ambition to reach USD 5 trillion economy, infrastructure development, growth in consumption, amongst others.

Further, it also undertakes price increase by considering inflation, currency dynamics, fuel cost fluctuations and other regulatory and mandatory costs. Effective January 2021, it has announced General Price Increase (GPI) of 9.6% compared to 2020, which could aid in revenue growth. Further, in the express cargo industry, technology-led disruptions will continue to test the business models and Blue Dart’s ability to continue to innovate and meet the evolving customer requirements is expected to remain key over the long term. At the current market price, the stock is trading at 41.3x of FY23E earnings.