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Blue Dart: Buy

Nath Balakrishnan

Mr Clyde Cooper, Managing Director, Blue Dart Express... Looking at opportunities.

INVESTORS who are not averse to taking risks can consider an exposure to the stock of Blue Dart Express, which trades now at Rs 73.

The company is the market leader in the express courier business with a share of 38 per cent.

It recently entered into a sales alliance for outbound traffic with DHL, the premier player in the air express industry worldwide, after having split with its erstwhile partner, FedEx.

Financial performance: Blue Dart, which derives about 80 per cent of its revenue from domestic business and the balance from its international business, posted net sales of Rs 80.1 crore, a 10.6 per cent jump compared to the Rs 72.4 crore in the corresponding previous quarter. Total expenditure, reckoned as a percentage of sales, declined from 87.8 (quarter ended September 2001) to 86 per cent for the latest quarter, leading to better operating margins.

Blue Dart also operates three aircraft through its subsidiary, Blue Dart Aviation. As fixed costs constitute a fair chunk of their expenditure, a reduction in costs implies better aircraft utilisation.

After accounting for interest costs (down 24 per cent at Rs 1.7 crore), depreciation (up by about 26 per cent at Rs 1.9 crore) and taxation (up 122 per cent at Rs 2.8 crore), the company posted a profit after tax of Rs 4.8crore, a jump of 24.6 per cent compared to the Rs 3.86 crore profit posted in corresponding previous quarter.

Business prospects: Blue Dart's alliance with DHL gives it greater global reach and access to DHL's customers in India. However, with international business contributing about 20 per cent of revenues, the alliance would not have a substantial impact on topline.

The greater benefit for Blue Dart is the increased operational flexibility the deal bestows upon it.

The company would be in a position to foray into SAARC countries and capture business emananting from there. This would, in turn, lead to a better capacity utilisation of its aircraft. Under the earlier agreement with FedEx, there were territorial restrictions imposed on Blue Dart.

Blue Dart's strength arises from its formidable position in the domestic market. Servicing about 13,000 locations across the country, it has also tied up with smaller courier firms to further its penetration.

Substantial investments on the technology front (for instance, customers can track the status of their shipments in real time), have served to erect entry barriers and, in turn, fortify the company's standing.

These technology initiatives would provide Blue Dart competitive advantage as it evolves into a purveyor of total logistics solutions.

With companies increasingly attaching importance to supply-chain efficiency, services catering to this need would serve as revenue-drivers in the future.

On the flip side, this is a business that hinges on the health of the economy and a downturn can impact it negatively.

By extension, if business slackens, it would also affect utilisation rates of company aircraft, thereby impinging on profitability of operations.

The company also has to contend with the fluctuating prices of air turbine fuel.

Stock outlook: With an extensive network and a strong clientele, the company is set to consolidate its position in the domestic market.

However, the volatility of the stock and the adverse impact extraneous factors can have on the business make it a counter that would appeal to those with a tolerant attitude towards risk.

At the current market price, the stock trades at a price-earnings multiple of 9.3 times its half-yearly earnings (annualised).

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