Blue Dart Express Limited : From Blue To Red
The ongoing pandemic and the various phases of lockdown have hit the logistics industry hard and Blue Dart Express has been one of the victims. Despite being able to continue its operations with the supply of medical equipment and other essential goods, the company has reported loss in recent times due to the overall slump in economic activity
Blue Dart Express Limited is engaged in the business of integrated air and ground transportation and distribution of time-sensitive packages to various destinations, primarily within India. The company provides courier and express services. Some of its business offerings include Internet Dart, Shop Track, Pack Track, Mobile Dart, Ship Dart and Image Dart. Its other services include Domestic Priority, Dart Apex, Dart Surfaceline, Temperature Control Logistics (TCL), Airport-to-Airport, International Services, Charters, Interline, Smart Box, Express Pallet and Regional Services.
Blue Dart Express offers secured and reliable deliveries of consignments to over 35,000 locations in India. As part of the DPDHL Group, the company has access to the largest and most comprehensive express and logistics network worldwide through DHL, covering over 220 countries and territories and offers an entire spectrum of logistics solutions.
Global Logistics Industry
Similar to other industries, the logistics industry has also been severely hit by the ongoing pandemic. Hence, big players in the industry across the globe are expected to focus on improving operating effectiveness and make investments for technology improvement. Though slowdown is expected in world trade which will pinch the air cargo markets, normalising of economic conditions will lead to demand growth. Supply of essential commodities, growing demand and distribution of personal protective equipment, etc. is expected to aid in the growth of the industry from USD 2,734 billion in 2020 to USD 3,215 billion by 2021. However, the projection for FY21 is estimated to be down by over 10-15 per cent as compared to the estimation pre-pandemic levels.
Logistics Industry in India
Since it is seen that the logistics industry is comparatively fragmented with a huge number of unorganised players, going forward the industry needs to be organised and at the same time there is a need to reduce logistics cost to 10 per cent by 2022 from the current 14 per cent. In the last few years, the Indian logistics industry has been gaining traction. It can be seen playing a very important role in facilitating trade and thereby propelling the growth of the Indian economy.
The Indian logistics industry isn’t immune to the disruptions and subsequent business contractions caused by the pandemic. Though being affected, increase in commerce gives hope for improvement. Deeper penetration into rural India, initiatives to enhance the economy, implementation of GST and other initiatives such as Make in India, Digital India and National Logistics Policy, etc. will support the industry’s growth.
Financial Performance
Looking at the company’s quarterly trends on a consolidated basis, for Q1FY21, Blue Dart Express reported net sales of Rs 416.16 crore, a decrease of 47.24 per cent as against the net sales of Rs 788.80 crore for Q1FY20. For Q1FY21, the company incurred an operating loss of Rs 39.87 crore as against an operating profit of Rs 119.32 crore gained in Q1FY20. Blue Dart Express incurred a net loss of Rs 125.84 crore in Q1FY21 as against a net profit of Rs 5.99 crore gained in Q1FY20. Though the national lockdown implemented during the pandemic impacted results of subsequent quarters as the eco-system for an efficient supply chain was dislocated, the company continued its role as the nation's trade facilitator, moving essential items for the pharmaceutical and medical equipment industries.
On the annual front, in FY20 the company reported net sales of Rs 3,175.13 crore, an increase of 0.02 per cent over the net sales of Rs 3,174.40 crore reported in FY19. For FY20, operating profit increased by 60.72 per cent to Rs 489.70 crore from Rs 304.69 crore reported in FY19. Blue Dart Express incurred a net loss of Rs 41.86 crore in FY20 as against net profit of Rs 89.76 crore gained in FY19.
The company incurred net loss in FY20 because of increase in finance cost and depreciation. For FY19 the finance cost was Rs 15.35 crore as compared to Rs 32.14 crore in FY20. For FY19 the depreciation was Rs 47.96 crore as against Rs 152.80 crore in FY20. Blue Dart Express carried over 2,403.98 lakh domestic shipments and over 8.44 lakh international shipments weighing more than 769,490 tonnes during the financial year ended March 31, 2020.
Outlook
Rating agency Moody’s has slashed its 2020-21 GDP growth projections for India to zero from the earlier 5.2 per cent and before that a 6.5 per cent forecast on the back of slower recovery. The corporate sector has seen extensive damages to business. Additionally, the geo-political tensions between India and China have been rising. Almost 14 per cent of India’s imports come from China, making it the nation’s biggest import partner. In fact, India is heavily dependent on Chinese imports such as electronics, components and pharmaceuticals. Any disruptions in manufacturing and trade affect the air express industry.
As cost pressures increase, companies belonging to various industries are seen shifting to cheaper alternatives for air packages and hence are choosing to ship heavier shipments through ground transport. Though there is an increase in air packages of essential items, the cost of operating at major airports has significantly increased after their privatisation without any improvement in services or differentiators. Operating costs are impacted on account of the problem of insufficient aircraft parking bays, truck docking stations, limited space for express terminals and clearance processes.
The revenue, profitability and operating cash flows of the company are impacted as operations were hit because of the lockdowns. Thus, the company has reported losses. Also, it is estimated that revival and further growth in the logistics industry will be rather slow. Uncertainty also looms over expansion of business operations and reduction in rising operating costs. Hence, our recommendation is to AVOID the scrip.