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Nath Balakrishnan

A proxy play for the economy, the company will remain in the limelight.

SHAREHOLDERS of Blue Dart can consider tendering their holdings in Blue Dart as part of the open offer being made by DHL Express (Singapore) Pte. Limited (DHLSG), at Rs 350 per share.

There is the possibility of a move to delist the stock though the regulatory framework is more stringent and favourable for shareholders now. Should Blue Dart continue to remain a listed entity, it will continue to be on the radar of investors, albeit at lower price levels. We maintain that Blue Dart provides an excellent proxy play on the economic growth story in India and would track it closely for subsequent investment opportunities.

Blue Dart is a premier player in the express courier and cargo business and Business Line has had multiple buy recommendations on the stock, since the time the stock was quoting at Rs 56 in April 2003. Our current view is based on the attractive price on offer, which represents a multiple of 24 times Blue Dart's expected earnings per share for FY05. This valuation is at a significant premium compared to the multiples that Blue Dart had commanded in the recent past.

There was also a sharp upward surge in the Blue Dart's stock price last October — when the stock vaulted from Rs 200-300 — in the run up to the announcement of a takeover by DHL (which came on November 8). The magnitude of the move can be interpreted to be more of an impending news-driven nature rather than one that can be ascribed to a significant improvement in fundamentals. Since then, the stock has remained range-bound at around the Rs 320 mark. There is also a possibility that some buying might also take place till such time the open offer closes to take advantage of the prevailing arbitrage opportunity.

Once this tapers off in the post-open offer period, the stock could seek lower levels. In this backdrop, the offer presents a good exit opportunity to investors.

Background to the offer

Last November, DHLSG announced the acquisition of the entire shareholding of the promoter group, amounting to 51.21 per cent of Blue Dart's equity, apart from a 17 per cent stake held by Newfields Holdings Limited of Mauritius, at Rs 350 per share.

The current offer is to acquire an additional 20 per cent stake in Blue Dart at the same price. It may be recalled that Blue Dart, after severing ties with its former partner FedEx in September 2002, had joined hands with DHL for its outbound business.

Should the current open offer be fully subscribed to and DHLSG acquires an additional 20 per cent, its holding would then stand at 88.21 per cent, subsequent to which it may decide to pursue plans to delist the company.

However, as seen in recent times, seeking to delist through the reverse book-building route has not been an encouraging experience, what with there being a huge disparity between what residual investors want for their holdings and what the company is willing to pay (AstraZeneca is a recent example).

Offer details

Ambit Corporate Finance is the lead manager to the offer, which opened on December 31, 2004 and closes on January 19.

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