Weak e-commerce demand and high costs hit Blue Dart in Q2

Govt curbs on e-commerce discounts and subdued online purchases in July-September impacted the business-to-consumer e-tailing segment of the firm


The low volumes and subdued revenues did not fully make up for the rise in costs, leading to a sharp drop in earnings.
The low volumes and subdued revenues did not fully make up for the rise in costs, leading to a sharp drop in earnings.

Shares of logistics solutions provider Blue Dart Express Ltd lost more than 4% on Thursday after the company reported weaker-than-expected performance for the September quarter. Sales grew just 1.6%. Operating profit and net profit are down in the range of 19-21%.

Government restrictions on e-commerce discounts and subdued online purchases in July-September impacted the business-to-consumer (B2C) e-tailing segment of the firm. This segment generates almost a quarter of Blue Dart’s revenues. According to two analysts, B2C e-tailing revenues fell from a year ago, weighing on overall sales. The low volumes and subdued revenues did not fully make up for the rise in costs, leading to a sharp drop in earnings.

The sales slowdown comes on a strong base. Revenues in the year- ago September quarter grew in double digits. But as online sales slowed and e-commerce companies engaged cheaper alternatives like their own logistics and dedicated surface delivery firms, Blue Dart’s revenue growth began to taper off. As a result, the B2C segment’s contribution to overall revenues fell from around 25% in the previous fiscal year to 22-23% in the last quarter, Antique Stock Broking Ltd said in a note.

Growth in the company’s business-to-business (B2B) segment picked up in the last quarter. But analysts are not attaching much importance to it yet, as the B2C e-tailing business is seen as a key needle-mover for revenue growth. Further, conviction levels on this are low right now.

The current online sales campaigns and festive purchases can perk up e-tailing business in the current quarter. But one can get a fair idea of sustainable growth or volume levels only after the current festive season (i.e. January-March 2017 quarter).

Also, there are fears that Blue Dart is losing market share in surface (road) logistics and deliveries. Analysts are cautious that new entrants and delivery firms dedicated to e-commerce are exerting pricing pressure and gaining market share. Blue Dart is said to be addressing these concerns by increasing focus on surface transport and deliveries.

But these steps can take time to show results on a sustainable basis. So, despite the favourable outlook for the logistics sector and a sharp correction of the stock in the last one year, analysts remain wary about the company’s prospects in the near term. While high valuations are not helping, the concerns are leading to earnings cuts.

“We trim our FY17/FY18 estimates by ~10% to account for near term weakness in volume growth and also introduce FY19 estimates. Despite the 30% correction from peak, Blue Dart continues to trade at an expensive valuation of 74x FY17e/56x FY18e EPS. We await a better entry point,” Antique Stock Broking said in the note.

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