The Hindu Business Line : ‘Policy change could send wrong signals to investors’

Courier companies are worried that their party might be spoilt by the proposed postal reforms Bill. They have been riding the crest of the economic boom, growing at an average 20-25 per cent the past couple of years. If forecasts are anything to go by, express companies, as couriers are known in industry parlance, will continue to grow in India at the same level, if not higher, over the next five years.

But if the proposed Amendments to the Indian Post Office Act come into force, the ownership and operation of courier companies will undergo drastic changes.

The proposed Bill restricts foreign ownership of domestic courier companies to 49 per cent and reserves documents below 150 gm for India Post. The private companies have to charge 2.5 times more than the India Post’s Speed Post charge if they want to carry documents under 150 gm.

The Bill is being brought back at a time when several foreign firms have been finalising their India strategy. Blue Dart Express Ltd, the leading express company, has been trying to convert itself into a 100 per cent foreign company.

DHL, which took over the Indian company in 2004, currently holds 81 per cent stake and wants to de-list Blue Dart from the stock exchanges. The company made an open offer last year but called it off, as it could not get the desired response from the shareholders. If the Bill is passed, DHL will have to bring its equity stake in Blue Dart back to 49 per cent. But this development has not in any way affected the expansion plans of Blue Dart in India. On the other hand, the company plans to make additional investments in expanding the infrastructure. In a chat with Business Line, Mr Anil Khanna, Managing Director, Blue Dart Express Ltd said: “Yes, we are concerned about the proposed Bill. It appears that the Government is taking a U-turn in its liberalisation programme.”

Currently, 100 per cent foreign equity is allowed in domestic express companies. International players have been acquiring home-grown companies and making substantial investments. Suddenly a change in the policy could send wrong signals to international investors.

The proposal forcing private couriers — to charge five times the price multiplier of India’s Post’s speed post charge for documents below 150 gm — will drive out many small operators from the field.

Similarly, the Universal Obligation fee prescribed in the Bill could bring down the courier companies’ revenue substantially. But that doesn’t deter us from our commitments in the Indian market,” Mr Khanna said. The Express Industry Council of India has taken up the issue with the government, he said.

Mr Khanna preferred not to discuss further the company’s ownership issues. Having held senior positions in the company for 14 years, he is essentially an operations man, focusing on the company’s business growth.
Expansion plans

We have major expansion plans in India. In the current year we will be creating 57 new facilities across the country. We are spending about Rs 22 crore for strengthening ground infrastructure. We will also be expanding our air capacity by acquiring an additional 757 aircraft, which will join our fleet in the next couple of months.

Our air capacity has now expanded to a payload of 300 tonnes through 62 routes every night, confirming Blue Dart’s position as the undisputed market leader in the domestic express segment.

The company now operates four B-737s and two B-757s, linking its seven aviation hubs in the country.
The company’s growth

Blue Dart is South Asia’s largest air express company and maintains a reliability level of 99.96 per cent. We expect the company to grow more than the industry’s average growth of 18 per cent.

The company made a profit before tax of Rs 51.17 crore for the six months ended June 2007, up 14.21 per cent over the corresponding previous period. With the domestic economy growing at more than 9 per cent, India could be one of the hottest express markets around the world.

In June, Blue Dart started a daily air service from Chennai to Delhi with a 757 aircraft. With Chennai being a manufacturing hub, there is plenty of air cargo from telecom, software and auto companies. “We fly full-load from Chennai, but on return from Delhi we have on an average capacity utilisation of 70 per cent. From Chennai the demand is growing. Several leading corporates are our regular clients. They are asking for more space.
Market share

We currently have a 41.7 per cent market share in the organised domestic air express segment, which is estimated at Rs 1,260 crore. If you take into account the players in the unorganised sector, the market size would be more than Rs 2,700 crore. The domestic Air Express market is projected to grow to Rs 5,200 crore by 2012.
Competition

A number of players are entering the express industry. There is an increased interest in India’s business potential from across the globe. The same trend is witnessed in the express industry with multinational players acquiring home-grown companies. There could be more consolidation in the sector, and competition could intensify.

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