BlueDart Express - Initiating Coverage

8/13/2019 BlueDart Express - Initiating Coverage

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March 26 2013nitiating Coverage

ICICI Securities Ltd|Retail Equity Research

On express growth pathBlue Dart Express (BDE), the market leader in the air express segment(47 market share), has embarked on a journey of accelerated growth,likely to be driven by its superior infrastructure, technology and vastnetwork. BDE has strong parentage (DHL owns 75 stake in Blue Dart)coupled with an owned fleet of aircraft, high service standards, pan-Indiapresence and long term tie-ups with major corporates across variousbusiness segments. It is well poised to benefit from its first moveradvantage and capture a larger pie of the steadily expanding air express(13 CAGR over CY12-CY15E) and ground express market (19 CAGRover CY12-CY15E). We expect revenue, EBITDA and PAT to grow at aCAGR of 18 , 22 and 19 , respectively, over CY11-15E.Leadership in air express segment to continue; ground express to consolidate

BDE has a dominant market share of ~47% in the air express segment,nearly 4x its nearest competitor. We expect BDE to continue to maintainmarket leadership in the air express segment owing to its own fleet ofaircraft enabling it to deliver time sensitive post and parcels efficiently toits vast corporate and retail clientele. On the other hand, we expect BDEsground express segment to capture a higher share due to a shift fromunorganised to organised players owing to an improvement in roadinfrastructure and implementation of GST.

Competitive edge owing to inimitable infrastructure and pan-India presence

BDEs fleet of seven aircraft and 7460 vehicles covers 33,739 locations via

20 ground hubs and 166 network routes providing it the competitive edgethat enables it to have an advantage over existing domestic players andnew entrants including MNCs trying to enter the industry. By virtue of itscompetitive head-start, it has been able to form tie-ups with corporates,which comprise ~94% of revenues providing strong revenue visibility.

Valuations ripe at current fundamentals

A debt-free balance sheet coupled with consistent revenue growth,improved EBITDA margin and asset light model enable BDE to catalyse itsearning growth. We expect it to deliver earnings CAGR of 19% over CY11-FY15E. The stock has traded at a one year average PE multiple of 29x andtwo year average PE multiple of 27x. We expect the earnings momentumto continue with improved cash flows and ascribe a multiple of 27x

FY15E. We initiate coverage on BDE with a HOLD rating and a target priceof | 2381.

Exhibit 1:Valuation MetricsCY10 CY11 FY13E* FY14E FY 15E

Netsales (| Crore) 1149.9 1492.3 2169.2 2070.7 2447.4

EBITDA(| Crore) 154.7 176.7 267.3 262.4 319.5

Net Profit (|Crore) 94.7 124.2 176.4 172.7 209.6

EPS (|) 39.9 52.3 59.4 72.7 88.2

P/E (x) 58.2 44.4 39.1 31.9 26.3

Price/Book (x) 10.1 8.3 6.6 5.5 4.6

EV/EBITDA(x) 35.4 31.0 25.3 20.5 16.4

ROCE(%) 24.8 23.3 23.4 23.5 24.0

ROE(%) 17.4 18.7 17.0 17.3 17.5

* FY13 for 15 months, FY13E EPS is annualised Source: Company, ICICIdirect.com Research

BlueDart Express(BLUDAR)

| 2320

Rating matrix

Rating : Hold

Target : | 2381

Target Period : 12 months

Potential Upside : 3%

YoY Growth (%)

YoY Growth CY10 CY11 FY13E* FY14E FY 15E

Netsales 27.0 29.8 16.3 19.3 18.2

EBITDA 49.2 14.2 21.0 22.7 21.7

Net Profit 56.0 29.7 13.8 22.3 21.4

EPS 56.0 31.1 13.7 22.3 21.4

* FY13 for 15 months

Valuation summary

CY10 CY11 FY13E* FY14E FY 15E

PE(x) 58.2 44.4 39.1 31.9 26.3

Target PE(X) 59.7 45.6 40.1 32.8 27.0

EV to EBITDA(x) 35.4 31.0 25.3 20.5 16.4

Price to Book(x) 10.1 8.3 6.6 5.5 4.6

RONW (%) 17.4 18.7 17.0 17.3 17.5

ROCE(x) 24.8 23.3 23.4 23.5 24.0

* FY13 for 15 monthsStock data

Market Cap (| cr) 5512.3

Debt (CY11) (| cr) 0

Cash (CY11) (| cr) 40.3

EV (| cr) 5472.1

52 Week H/L (| cr) 2630/1383

Equity Capital (| cr) 23.76

Face Value (|) 10

DII Holding (%) 9.67

FII Holding (%) 3.34

Price movement

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

Mar-13Dec-12Oct-12Jul-12Apr-12

2,000

2,500

3,0003,500

4,000

4,500

5,000

5,500

6,000

6,500

BlueDart (R.H.S) Nifty (L.H.S)

Analysts name

Bharat Chhoda

[email protected]

Soumojeet Kr Banerjee

[email protected]

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Page 2ICICI Securities Ltd Retail Equity Research

Company background

BlueDart Express (BDE) was founded in 1983. Global logistics major DHL

acquired an 81.03% stake in BDE 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 the countrys premier integrated package distribution company, with a

presence in over 33,739 locations domestically and 220 countries

worldwide. The company has one subsidiary and an associate company

namely Concorde Air Logistics Ltd and Blue Dart Aviation Ltd (BDA) with

100% and 49% 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.

BDE has been awarded Superbrand status 2011 (six years in a row),

Starbrand status 2011 (twice in a row) and Powerbrands 2011 (twice in a

row).

Exhibit 4:Chronology of BDE

Source: Company, ICICIdirect.com Research

Management Profile

Sharad Upasani (Chairman): Previously associated with IMF, Governmentof India and Government of Maharashtra.

Anil Khanna (Managing Director):Overall 32 years of experience and 20year plus experience with BlueDart Express.

Yogesh Dhingra (Finance Director CFO): Overall 28 years of experienceand 20 year plus experience with BlueDart Express.

Tulsi Mirchandaney (MD BlueDart Aviation): Overall 38 years ofexperience and 17 year plus experience with BlueDart Express.Malcolm Monteiro (Director): Senior VP and Area Director, South Asia,DHLE, previously MD BlueDart Express.

Exhibit 2: Shareholding Pattern

Shareholder Holding (%)

Promoter 75.0

FII 3.3

DII 9.7

Others 12.0

Exhibit 3: Shareholding Trend

0

20

40

60

80

100

Q1CY12 Q2CY12 Q3CY12 Q4CY12

Promoter FII DII Others


1983-84 1991-93 1994 1996-2002 2004-06 2007-09 2009-2012

Inception. First domestic

and international onboard

courier

Introduced track and trace

technology. Introduced

employee and customer

satisfaction survey. E-mail

network started

Goes public with

equity offer of 2.55

million shares

Inducted two B737s. Website

launched in 2000. Inductionofthird B 737-200 in 2001

Sales alliancewith DHL in2002

Induction of fourth and fifth B

737-200s express freighters.

DHL acquired 81.03%shareholding in 2005. Firsttoinduct two B757-200

Inducted third B757-200.

Inducted fourth B757 on 25th

anniversary of BDE. Introduced

multiple products,awardedSuperbrand. Fist integrated

BDE-DHL facility at Bengaluruairport

ISO9001-2008 certified.

Introducednet promoterscore. Pilots smart truck.Launches GOLREEN.InductsfifthB757



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Page 3ICICI Securities Ltd|Retail Equity Research

Investment Rationale

Advantage BDE in absence of domestic integrated players

The express industry in India is estimated at ~| 10,870 crore in FY12 andis expected to grow at an average rate of 17 to | 17,450 crore by FY15.The industry is highly fragmented with ~2500 players but very fewintegrated players. In the organised segment, the postal departmenttogether with large players constitutes 72 , 15 is held by semi-organised players while the residual is with other smaller players. Majordomestic players in the organised segments like BlueDart, DTDC,FirstFlight, etc. in collaboration with global majors like DHL, FedEx, TNTand UPS constitute the organised express industry in India. BlueDart withstrong parentage of German express giant DHL and own fleet of aircrafthas an end-to-end delivery network covering 166 network routes and 20ground hubs together with seven air network stations. BlueDart is theundisputed market leader with 47 market share in the air expresssegment and commands ~ 13 share in the ground express segment.BDEs revenue is mainly driven by the institutional business constituting~94 of total revenue with the remainder coming from retail clients. Webelieve BDE is well poised to benefit from its first mover advantage andcapture a larger pie of the steadily expanding air express (13 CAGRover CY12-15) and ground express market (19 CAGR over CY12-15).Air cargo: Burgeoning segment

The total domestic air cargo carried (belly and scheduled) grew at a CAGRof 11% over 2001-11 reaching 483,000 tonnes. Air cargo hauled byscheduled cargo operators in India grew at a CAGR of 17% over the lastdecade. Over 20 years, scheduled cargo grew at a CAGR of ~27%.However, the CAGR in scheduled cargo over the past five years has been

considerably high at 24%. The overall belly cargo segment has alsogrown considerably in the last decade at a healthy CAGR of 10%signalling growth in the air cargo segment. BlueDarts predominance inthe promising scheduled cargo segment, which has seen significantgrowth over the past two decades, facilitates the company to maintain itslead in the air express industry.

Exhibit 5:GDP growth against air cargo growth

-10

-5

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011

Percentage

GDP RATE Total Domestic air cargo growth


Air cargo growth has high correlation

and elasticity with GDP growth.

During the global meltdown in 2009,

air cargo volumes declined sharply.

However, with stabilisation of theglobal trade scenario, air cargo

volumes have bounced back in 2010

and 2011



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Exhibit 6:Category wise air cargo growth

24.8

160.6

97.5100.7

382.0

262.6

0

100

200

300

400

500

Scheduled cargo operators

(Domestic)

Total Domestic Cargo

carried (Belly Cargo)

International Cargo (Belly

cargo)

000

tonnes

2001-02 2010-2011

Source: DGCA, ICICIdirect.com Research

Exhibit 7:Air cargo distribution trend

-20

-10

0

10

20

30

40

50

2003 2004 2005 2006 2007 2008 2009 2010 2011

Percentage

Scheduled cargo operators growth Belly cargo growth

Total Domestic cargo growth

Source: DGCA, ICICIdirect.com Research

Over the last decade, domestic scheduled

cargo has grown at a CAGR of 17% whereas

domestic belly cargo and international belly

cargo have increased at a CAGR of 10% and

11%, respectively, over 2001-02 to 2010-11

Scheduled cargo growth has been robust albeit

on a lower base. However, it has shown

significant resilience to the downturn.

Scheduled cargo in India is mainly shared by

BlueDart, Deccan Cargo and Express Logistics



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BDEs pole position in air express segment to continue amid growing ground

express segment

The organised segment of the express industry constitutes 48%, which isfurther segregated into air express (AE) and ground express (GE). In theorganised segment, ground express comprises 55% market share

whereas the air express industry forms 45%. As of 2012, air express has amarket size of | 2340 crore and is expected to grow at a CAGR of 13% inFY12-15E. Ground express with a market size | 2870 crore is poised togrow at a faster CAGR of 19% during the same period.

Exhibit 8:Courier industry: Organised & unorganised

52106070

7050

8190

5660

6648

7830

9260

0

1000

20003000

4000

5000

6000

7000

8000

9000

10000

2012 2013 2014 2015

|C

rores

Organised Unorganised


Exhibit 9:Air and ground express sector size

2040 2340

26502990

3360

24002870

3420

4060

4830

0

1000

2000

3000

4000

5000

6000

2011 2012E 2013E 2014E 2015E

|

Crores

Organised Air Express Sector Size Organised Ground Express Sector Size


BDE being an early mover holds a market share of ~47% in the airexpress segment making it the virtual leader in the category with thenearest competitor commanding ~12% market share. We believe BDEwould continue to maintain its pole position in the air express segmentdue to its early mover advantage and inherent benefit due to owned fleetof aircraft and an extensive network built over the years. Moreover, BDEalso commands a healthy market share of ~13% in the ground expresssegment. We believe BDE will be able to leverage its brand andunmatched reliability record to garner volumes in the rapidly growingground express segment.

Exhibit 10:Air express market share - CY2011

46.1

12.9

12.6

28.4

Blue Dart Competitor 1 Competitor 2 Others


Exhibit 11:Ground express market share - CY201111.8

28.0

26.2

14.8

19.2

Blue Dart Competitor 1 Competitor 2 Competitor 3 Others




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Plethora of products to address myriad customer requirements

The USP for the express industry is its ability to provide door-to-door timebound services both in terms of documents and non-documents. BDE,with its suite of integrated solutions, provides services right fromdomestic door-to-door to international door-to-door through its parent

DHLs worldwide network. As an integrated player, BDEs 19 coreofferings distributed across express services, value added services and airfreight services cover a gamut of industry requirements. Its bouquet ofofferings across ground and air express make BDE a preferential partnerfor institutions that require all services under one roof.

Exhibit 12:Core service offerings




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Pioneered technology enhances transparency, optimises operational

efficiency

BDE being a pioneer in the technology segment has many firsts to itsname. Technology is used to enhance customer interface together withsynergising internal processes. State-of-the-art technology like weight

dimension labelling (WDL) for accurate weight measurement, GPS for realtime shipment visibility and also new technology like radio frequencyidentification (RFID) to ensure speed, safety and accuracy confirm swifterand precise information access to customers. BDE has developedtechnology tools that provide vital inputs to improve operationalefficiency not only for internal applications but also to provide customersseamless information about their shipments. This is imperative in abusiness where majority of customers belong to the institutional segmentand high value shipments are handled.

Exhibit 13:State-of-the-art technology




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Unparalleled network, robust infrastructure catering across India

BDE has the distinction of having one of the most extensive domesticcoverage networks with over 33,739 service locations. The company hasa dedicated aviation system with seven freighters (five B-757s and two B-

737s) with a daily haulage capacity of 375 tonnes together with seven airnetwork stations across metro cities. In the ground segment, BDE appliesa combination of a hub and spoke and centipede model. The groundexpress segment has a robust fleet size of 7460 vehicles with 274 touchpoints serving 166 network routes and 20 ground hubs. Extensive reachcoupled with optimised flight scheduling ensures superior transit time,thereby improving customer value proposition. Among its peers, BDE hasmore than three times as much coverage as its nearest competitor. Suchextensive coverage coupled with time-bound delivery make BDE anattractive proposition and partner for business transactions.

Exhibit 14: BlueDart leads the way.BlueDart Fedex India DTDC

Domestic locations 33739 879 10000

International location 220 220 220

Work force 8109 7500 5500




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Exhibit 15:Network Coverage


Institutional focus catering to niche industry requirement

BlueDart Express derives 94% of its business from corporate institutionsand the remaining 6% from the retail segment. As the majority of thebusiness flows from institutions with whom BDE has formal agreements,it provides enhanced revenue visibility and lower tonnage volatility. Somemajor sectors that contribute to the business of BDE are BFSI, pharma, IT,auto, retail and e-commerce. To cater to the demands of key customer

sectors, BDE has developed focused solutions to ensure sustainablegrowth. Products such as time definite delivery, temperature controlledlogistics, dart surface line, etc. have been developed and customisedaccording to sector requirement.



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Exhibit 16:Customised industrial offerings


In the institutional business, the BFSI sector is a major contributor torevenue for BDE followed by IT, auto and pharma. These sectors arepoised to grow at a robust rate over the next three or four years. Anothersegment that is expected to play a pivotal role for the express industry isthe e-commerce segment, which is growing at a significant rate andwould provide a massive push to the express freight segment.



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Exhibit 17:Sector-wise size and expected growth till 2015Current Industrysize

(|crore) Growth (CAGR)

Retail 2851200 11%

Apparel 1895400 9%

Textile 3250800 7%

Auto Sector 425000 14%

Pharma 150000 13%

Banking 5200000 16%

Ecommerce 8640 53% Source: Forrester research, ICICIdirect.com Research

Exhibit 18:Revenue break-up

94%

6%

Institutional Retail


Implementation of GST to boost volumes for organised players

Implementation of the Goods and Services Tax (GST) is expected to breakthe shackles of dual taxation in India, thereby relieving inefficiencies in thesystem. With a single rate being applied across the country, the whole ofIndia will act as a single market, thereby reducing taxes in manufacturedgoods and impacting the pricing of the product. In the absence of acascading taxation system, manufacturers do not have to maintainmultiple warehouses to save inter-state tax. This will lead to consolidationof warehouses across the country. This consolidation will mitigateredundancy in the supply chain and improve efficiency in the operationswith better logistics management. This consolidation of warehousesaugurs well for logistics companies as transportation lot sizes increaseleading to better pay load factor and faster turn around time (TAT).

Exhibit 19:Impact on warehousing

Source: ICICIdirect.com Research



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Further, with implementation of GST, there will be a transition from theunorganised segment to the organised segment in the logistic sector, asparticipants will insists on invoices for transactions to benefit from inputcredit set-off. This transition to the organised segment bodes well forplayers like BDE as more institutional participants transit throughorganised players increasing their volume.

Exhibit 20:Transition to organised sectorCase A: Present Scenario- Companies have multiple warehouses to counter CST

Case B: Post GST Scenario- Zero CST on inter-states sales

Producer:

Landed Cost: | 500

Margin: | 50

CST: |0

Selling Price: | 550

Warehouse:

Landed Cost: | 550

Warehouse cost: |10

Margin: | 0

VAT: | 22.4

Selling Price: | 582.4

Wholesaler

Landed cost: | 582.4

Margin: | 17.6

VAT credit: | 22.4

VAT: | 24

Selling Price: | 601.6

Retailer

Landed cost: | 601.6

Margin: | 23.4

VAT credit: | 24

VAT: | 25


Producer:

Landed Cost: | 500

Margin: | 55


Wholesaler

Landed cost: | 555

Margin: | 20

VAT: | 23


Retailer

Landed cost: | 598

Margin: | 25

VAT credit: | 23

VAT: | 25


Source: ICICIdirect.com Research

E-commerce: High potential business segmentThe e-commerce business in India is expected to grow five-fold fromUS$1.6 billion in 2012 to US$8.8 billion in 2016. With the continuousincrease in internet penetration (currently around 10%), e-commercegrowth is expected to get accentuated in non-metro cities as well. Onlineretailers are building warehouses and ascertaining shipping options thatwould work in non-metro and rural areas. In order to capture the growingand nascent customer base, e-commerce retailers provide free timebound delivery to its customers. As for budding e-commerce retailers,captive integrated logistics is not feasible. Therefore, to provide itscustomers with effective service, these companies collaborate withexpress service providers to facilitate last mile connectivity.

Another characteristic of the e-commerce business that is predominant inIndia is payment through cash-on-delivery (COD) mode. Around 23% ofonline shoppers in metropolitan India choose to pay through the CODmode. This mode of payment is imperative in the customer trust buildingmechanism. However, return rates are higher in such transactions.Express companies like BlueDart stand to gain from such transactions asthese increase their volumes. Further, for express companies, the risk ofdefault of payment from the e-commerce companies is mitigated in caseof COD transaction as the payment lies with express companies. As the e-commerce segment forms ~10% of the total topline for BDE and isexpected to grow further, BDE attunes its strategy and productsaccording to the requirements of the sector.



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Exhibit 21:E-commerce market size

1.6

8.8

0

2

4

6

8

10

2012 2016

US$B

illion

Market Size ($ Bln)

CAGR 77%

Source: Forrester Research, ICICIdirect.com Research

Exhibit 22:Payment options through online shopping

44

41

24

23

Credit card Debit card Online bank transfer Cash on delivery

Source: Forrester Research, ICICIdirect.com Research



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Financials

Tonnage growth to drive revenues

BDEs presence in the fastest growing segment of the logistics sector andits dominant position in air express with continuously expanding

presence in the ground express segment would enable it to garner highertonnage. We expect BDE to log tonnage growth at a CAGR of 18% overCY11 to FY15E to 698,500 tonnes. We believe BDEs air express andground express segments tonnage will grow at a CAGR of 11% and 20%,respectively, over CY11 to FY15E, respectively. Further, according to ourexpectation, the ground express segment would gain higher traction,going ahead, due to implementation of GST, better infrastructure facilitiesand higher outsourcing to 3PL players. We expect revenue growth fromthe ground express segment (25% CAGR over CY11 to FY15E) to outpacethe air express segment growth (16% CAGR over CY11 to FY15E).

Exhibit 23:Tonnage growth momentum to continue

338.0423.0

537.2 591.0

698.5

0

100

200

300

400

500

600

700

800

CY10 CY11 FY13E

(15

mths)

FY14E FY 15E

Tonnage handled (000 tonnes)


Exhibit 24:Steady growth in revenue

1,149.9

1,492.3

2,169.22,070.7

2,447.4

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

CY10 CY11 FY13E (15 mths) FY14E FY 15E

|

C

ro

re

Revenues


Exhibit 25:Air & ground express tonnage trend

91.0 125.1 110.1 123.3

332.0

412.1480.9

575.2

0.0

100.0

200.0

300.0400.0

500.0

600.0

700.0

CY11 FY13E (15

mths)

FY14E FY 15E

Air Express tonnage (000 tonnes)

Ground Express tonnage (000 tonnes)


Exhibit 26:Ground express segment growth to outpace air express

1,099.8

1,659.3

1,464.5

1,697.0

749.4

605.2509.0

380.3

300

500

700

900

1,100

1,300

1,500

1,700

1,900

CY11 FY13E (15 mths) FY14E FY 15E

|

C

ro

re

Air Express Ground Express




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Enhanced EBITDA margin to fuel EBITDA growth

BDEs business model is such that it gets better operating leverage withgrowth in volumes as a significant portion of its expenses are fixed andenhanced volumes enable it to achieve operational efficiencies drivingimprovement in EBITDA margin. Also, BDEs operating margin is

cushioned from an increase in fuel cost, which forms around ~ 18-20% asthe company employs a surcharge mechanism, which virtually insulates itfrom changes in fuel cost. We expect BDEs EBITDA to increase at aCAGR of 22% over CY11 to FY15E driven by a 130 bps improvement inthe EBITDA margin.

Exhibit 27:EBITDA margin to improve from FY13E

154.7 176.7

267.3 262.4

319.5

13.1%

12.7%

12.3%

13.5%

11.8%

0

50

100

150

200

250

300

350

CY10 CY11 FY13E(15 mths) FY14E FY 15E

|

Crore

10%

11%

12%

13%

14%

EBITDA EBITDA Margin (%)


Exhibit 28:Fuel surcharge chart

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Change in ATF price Change in surcharge


BDE via fuel surcharge mechanism

passes on the rise in fuel charge to

customers, thereby keeping margins

intact



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Asset-light model, debt free status to enable steady improvement in PAT

margin

BDE employs an asset light model as around 80% of its vehicle fleet isoutsourced and retail operations are on a franchise basis whereaswarehouses, hubs and aircraft are on a lease basis. Depreciation forms

less than 2% of net sales. With increased volumes, the same is expectedto reduce from 1.7% of net sales in CY10 to 1.4% in FY15E. Withconsistent revenue growth, higher EBITDA generation, low depreciationexpenses and a debt-free status, we expect PAT to grow at a CAGR of~19% over CY11-FY15E to | 209 crore and PAT margin to improve to8.5% in FY15E from 8.3% in CY11.

Exhibit 29:PAT to grow consistently from FY13E to FY15E

176.4

208.9

172.0

94.7

124.2

8.1%

8.3%

8.2%8.3%

8.5%

0.0

50.0

100.0

150.0

200.0

250.0


|C

rore

7.9%

8.0%

8.1%

8.2%

8.3%

8.4%

8.5%

8.6%

Net Profit Net Profit Margin (%) Source: Company, ICICIdirect.com Research

Return ratios to remain stable

We expect return ratios to remain stable over CY11-FY15E. Driven bysteady growth in profitability, we expect BDE to report an RoE and RoCEof 17.5% and 24.0% in FY15E, respectively.

Exhibit 30:Return ratios to improve from FY13E

17.4 18.7

17.0 17.3 17.5

24.823.3 23.4 23.5 24.0

0

5

10

15

20

25

30


ROE (%) ROCE(%)




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Risks and concerns

Regulatory concern-Draft Indian Postal Bills restrictive proposals

The draft Postal Bill 2011 proposes to give exclusive reservation to theIndian postal department for delivering letters under 150 gm and express

mail under 50 gm with licensed express industry players being allowed todeliver the same at twice the rate of speed post service of the postaldepartment. Any reservation or pricing restriction regulation, ifimplemented, will have a detrimental impact on express industry playersas it would put them at a competitive disadvantage vis--vis the postaldepartment.

Enhanced competition from large local and global players

The express industry being the fastest growing segment of the logisticsindustry is witnessing increasing competition with the entry of large localand global MNC players. Many global MNC players have lined up hugeexpansion plans for India to capture a share of the rapidly growing

market. However , we believe BDE, due to its first mover advantage, has acompetitive edge due to its pan-India network, own fleet of aircraft andsavvy technology that enable it to deliver time-bound and reliablesolutions to customers and maintain its market share.

High correlation to GDP growth

The express industry has high correlation with the GDP growth rate.Historically, the industry has grown by more than 2x GDP growth rate.However, any moderation in the GDP growth rate is likely to lower theindustry growth rate and negatively impact BDEs revenues andprofitability, since the industry is characterised by high operatingleverage.

Volatility in crude oil prices

Fuel (crude oil/ATF) charges form a substantial portion of expenses forBDE. Any significant fluctuation can impact the operational performance.However, to mitigate the risk, BDE follows a fuel surcharge based pricemechanism. This virtually insulates it from the impact of fluctuation incrude oil prices.

Increase in preference for e-statements compared to physical documents:

There has been an increase in the number of people opting for e-statements rather than physical documents delivered to them. Anysignificant surge in these customer behavioural characteristics can impact

document volumes for the express industry.



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Valuation

BDEs strong institutional clientele virtually ensures consistent cargovolume growth enabling steady growth in revenue, going ahead.Considering strong revenue visibility, asset light model and debt-freecapital structure, we have valued BlueDart Express on price to earningsmultiple over FY15E. At the current price, BDE is trading at 32x FY14E and26x FY15E. The stock has traded at an average PE multiple of 29x over thepast year and 27x average PE multiple over the last two years. Goingahead, we expect BDE to post sturdy earnings growth. Also, we expectfree cash flow to grow at a CAGR of 30% over CY11-FY15E and ascribe amultiple of 27x FY15E. However, given BDEs present rich valuations thatfactor its robust fundamentals, we initiate coverage on BlueDart Expresswith a HOLD rating and a target price of | 2381.Exhibit 31:PE multiple band

0.00

500.00

1000.00

1500.00

2000.00

2500.00

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

Close -Unit Curr 10.0 X 15.0 X 20.0 X 25.0 X 30.0 X


Exhibit 32:FCFE vs. price

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011

|

Crores

0

200

400600

800

1000

1200

1400

1600

1800

|

FCFE Price Source: Company, ICICIdirect.com Research

We expect the free cash flow to increase at a

CAGR of 30% in CY11-FY15E



19/24

Page 19

Financial summary

Profit and loss statement

(| Crore)(Year-end March) CY10 CY11 FY13E FY14E FY15E

Total operating Income 1,149.9 1,492.3 2,169.2 2,070.7 2,447.4

Growth (%) 29.8 16.3 19.3 18.2

Aircraft CharterCost 33.6 35.0 36.4 37.8 37.8

Other Aircraft Expenses 158.5 226.2 325.4 352.0 440.5

Fuel Charges 192.1 261.2 368.8 362.4 440.5

Other Operating Expenses 364.5 485.7 715.8 641.9 707.3

Employee Cost 150.1 185.7 271.1 238.1 281.4

Other Expenses 96.3 121.7 184.4 176.0 220.3

Total Expenditure 995.2 1,315.5 1,901.9 1,808.2 2,127.8

EBITDA 154.7 176.7 267.3 262.4 319.5

Growth (%) 14.2 21.0 22.7 21.7

Depreciation 19.4 21.8 24.4 28.4 32.1

Interest 0.0 0.0 0.0 0.0 0.0

Other Income 5.4 24.8 14.0 17.3 17.8

PBT 140.7 179.8 256.9 251.4 305.1

Total Tax 46.1 57.0 82.2 80.5 97.6

PAT 94.7 124.2 176.4 172.7 209.6

Growth (%) 29.7 13.8 22.3 21.4

EPS (|) 39.9 52.3 59.4 72.7 88.2 Source: FY13 for 15 months FY13E EPS is annualised Company ICICIdirect.com

Research

Cash flow statement

(| Crore)

(Year-end March) CY10 CY11 FY13E FY14E FY15E

Profit after Tax 94.7 124.2 176.4 172.7 209.6

Add: Depreciation 19.4 21.8 24.4 28.4 32.1

(Inc)/dec in Current Assets -93.9 -45.8 -67.0 -82.6 -79.5

Inc/(dec) in CL and Provisions 20.2 28.7 67.1 -14.1 33.3

Others 0.0 0.0 0.0 0.0 0.0

CF from operating activities 40.4 128.8 200.9 104.3 195.5

(Inc)/dec in Investments 0.0 22.1 0.0 0.0 0.0

(Inc)/dec in Fixed Assets -30.9 -47.7 -63.3 -60.0 -60.0

Others 25.9 -98.4 -78.2 -8.0 -9.7

CF from investing activities -5.0 -123.9 -141.4 -68.0 -69.7

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0 0.0Others 0.0 0.0 0.0 0.0 0.0

CF from financing activities 0.0 0.0 0.0 0.0 0.0

Net Cash flow 35.4 4.9 59.5 36.4 125.8

Opening Cash 0.0 35.4 40.3 99.8 136.1

Closing Cash 35.4 40.3 99.8 136.1 261.9

Source: FY13 for 15 months Company, ICICIdirect.com Research

Balance sheet

(Year-end March) CY10 CY11 FY13E FY14E FY15ELiabilities

Equity Capital 23.8 23.8 23.8 23.8 23.8

Reserve and Surplus 521.3 640.0 808.2 972.9 1,172.7

Total Shareholders funds 545.1 663.7 832.0 996.6 1,196.5

Total Debt 0.0 0.0 0.0 0.0 0.0

Long term Provisions 0.0 0.0 0.0 0.0 0.0

Other Long term liabilities 0.0 0.0 0.0 0.0 0.0

Deferred Tax Liability 21.62 21.96 22.00 22.03 22.05

Total Liabilities 566.7 685.7 854.0 1,018.7 1,218.5

Assets

Gross Block 327.5 395.2 465.2 535.2 595.2

Less: Acc Depreciation 143.8 162.1 186.5 214.8 247.0

Impairment 0.0 0.0 0.0 0.0 0.0

Net Block 183.7 233.2 278.7 320.4 348.2

Capital WIP 26.7 6.7 70.0 60.0 60.0

Total Fixed Assets 210.5 239.9 348.7 380.4 408.2

Non-current Investments 96.9 74.7 74.7 74.7 74.7

Long term loans & advances 112.4 201.9 201.9 201.9 201.9

Deferred Tax Asset 3.5 3.8 3.8 3.8 3.8

Inventory 2.2 2.6 5.9 5.7 6.7

Debtors 153.3 189.0 199.7 261.0 308.4

Loans and Advances 85.9 95.6 148.6 170.2 201.2

Other Current Assets 0.0 0.0 0.0 0.0 0.0

Cash 35.4 40.3 99.8 136.1 261.9

Current investments 0.0 0.0 0.0 0.0 0.0

Total Current Assets 276.8 327.4 454.0 573.0 778.2

Creditors 96.9 130.0 196.1 181.5 214.6Other liab & Provisions 36.5 32.1 33.0 33.5 33.8

Total Current Liabilities 133.4 162.0 229.1 215.0 248.3

Net Current Assets 143.4 165.4 224.9 357.9 529.9

Application of Funds 566.7 685.7 854.0 1 ,018.7 1,218.5 Source: FY13 for 15 months, Company, ICICIdirect.com Research

Key ratios

(Year-end March) CY10 CY11 FY13E FY14E FY15EPer share data (|)

EPS 39.9 52.3 59.4 72.7 88.2

Cash EPS 48.0 61.4 84.5 84.6 101.7

BV 229.4 279.3 350.2 419.5 503.6

DPS 1.0 2.0 3.0 2.9 3.5

Cash Per Share 14.9 16.9 42.0 57.3 110.2

Operating Ratios (%)

EBITDA Margin 13.5 11.8 12.3 12.7 13.1

PBT / Total Operating income 12.2 12.0 11.8 12.1 12.5

PAT Margin 8.2 8.3 8.1 8.3 8.6

Inventory days 0.7 0.6 1.0 1.0 1.0

Debtor days 48.7 46.2 42.0 46.0 46.0

Creditor days 30.8 31.8 33.0 32.0 32.0

Return Ratios (%)RoE 17.4 18.7 17.0 17.3 17.5

RoCE 24.8 23.3 23.4 23.5 24.0

RoIC 32.8 28.2 29.6 29.8 33.4

Valuation Ratios (x)

P/E 58.2 44.4 39.1 31.9 26.3

EV / EBITDA 35.4 31.0 25.3 20.5 16.4

EV / Net Sales 4.8 3.7 3.1 2.6 2.1

Market Cap / Sales 4.8 3.7 2.5 2.7 2.3

Price to Book Value 10.1 8.3 6.6 5.5 4.6

Solvency Ratios

Debt/EBITDA 0.0 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0 0.0

Current Ratio 2.1 2.0 2.0 2.7 3.1

Quick Ratio 2.1 2.0 2.0 2.6 3.1

Source: FY13E EPS is annualised Company, ICICIdirect.com Research



20/24


Annexure: 1

Express Industry: Flow of Consignment

Exhibit 33: Flow of Consignment

Source: Crisil, ICICIdirect.com Research



21/24


Annexure: 2

Industry Profile

Exhibit 34:Shipment profile: Volume

69

31

0

20

40

60

80

Document Non-Document

Percentage


Exhibit 35:Shipment profile: Value

36

64

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70


Percentage


Exhibit 36:Shipment under 150 gram

80

20

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Documents Non-Documents

Percentage


Exhibit 37:Modal split for domestic shipment

55

45

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Air Surface

Percen

tage





22/24


Exhibit 38: Shipment profile: Volume (domestic & international)

86

140

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Domestic International

Percentage


Exhibit 39:Shipment profile: Value (domestic & international)

57

43

0

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60


Percentage


Exhibit 40:Shipment Profile: Domestic volume

71

29

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Perc

entage


Exhibit 41:Shipment Profile: International volume

5743

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Perc

entage




23/24


Exhibit 42:Distribution of domestic shipment33 33

19

15

32 32

22

13

0

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30

35

Intra-City Top 4

Metros

Other large

cities

Rest of India

Percentage



Exhibit 43:Distribution of international shipment

20

27

19 19

15

23

31

19

16

10

0

5

10

1520

25

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35

USA Europe Middle

East

S-E Asia Rest of

world

Percentage



Exhibit 44:Delivery timelines32

30

26

11

21

25

31

23

0

5

10

15

20

25

30

35

Within 24

Hrs

24-48 Hrs 48-72 Hrs More Than

72 Hrs

Percentage



Exhibit 45:Mode of shipment

37 42

21

100

0 00

20

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80

100

120

Air Surface-only

road

Surface-

rail+road

Percentage





24/24

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

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;

Pankaj Pandey Head Research [email protected] Research DeskICICI Securities Limited1stFloor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

We /I, Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accuratelyreflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific

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