Blue Dart turns to cost efficiencies to prop earnings
Blue Dart Express Ltd, whose financial metrics were under pressure due to the twin impact of demonetisation and the goods and services tax (GST), has surprised the Street with a sharp improvement in profitability.
While revenues expanded by a sedate 6%, margins rose from 6.9% in the first quarter to as much as 10.9% last quarter (Q2). Of course, the sustainability of margins remains an uncertainty.
The GST-infused disruption to trade remains a headwind. Post the hit in July and August, business recovered towards the end of September. But it is not clear if this is a structural recovery or a temporary boost to volumes thanks to the festive season. The management expects clarity to emerge next month.
But it is concerned the industry may continue to be challenged by the after-effects of the GST-related disruption.
“The economy is still reviving from the after-effects of demonetization and now GST, which has impacted growth across certain large industry verticals. The outlook is moderate and holds the potential for long-term benefits. The challenges will continue through the year,” said Anil Khanna, managing director of Blue Dart.
Separately the management told CNBC-TV18 that people are still trying to get their act together and hence it is too early to see the benefits of GST.
The commentary implies that Blue Dart will continue to see growth headwinds in the near term, which may result in another year of subdued revenue growth. “We expect growth to remain slow (in single digit) for FY18, while we build in 15% y-o-y growth in FY19,” Antique Stock Broking Ltd said in a note. There are also challenges in the e-commerce segment, which is seeing aggressive price competition.
Perhaps sensing the growth headwinds, the management is turning to cost efficiencies for earnings performance. “We will maintain a keen focus on managing cost pressures and improving efficiency and EBIT to sustain our performance,” says Khanna. Ebit is short for earnings before interest and taxes.
While the measures should help Blue Dart to some extent in the short term, for long-term earnings growth, revenue growth will have to revive.