The rapid expansion of the e-commerce industry in India and the introduction of the goods and services tax or GST (expected to benefit organized industry) should have ideally boosted the business of logistics firms. But as Blue Dart Express Ltd’s financial performance shows, this scenario is not exactly playing out. Rather, firms are struggling to maintain revenue momentum.

As the accompanying chart shows, revenue growth at Blue Dart has seen a noticeable slowdown over the last two years, even as the e-commerce market in India expanded. Of course the last two years have seen business disruptions such as demonetisation and implementation of GST.

Even so, things are expected to normalize by the end of fiscal year 2018 (FY18). But still, the recovery is tepid. While revenues during the March quarter increased 6%, operating profit grew just 3.4%. Profitability fell as fuel and employee expenses rose.

According to the management, Blue Dart faced sluggish market conditions. As competition remained firm, implementation of GST and the e-waybill created hiccups, leading to subdued performance. But structural issues are also at work.

The business-to-consumer segment, which generates about one-fourth of Blue Dart’s revenues, is under pressure. Aggressive pricing by new firms (start-ups) and increased share of captive logistics of e-commerce firms are weighing on Blue Dart’s revenue and profitability, points out Antique Stock Broking Ltd.

The business-to-business segment, which generates the majority of the company’s revenues, is facing competition from the road segment (some clients shifting from air to road transport) and passenger airlines. As the passenger airlines add new aircraft, they are also eating into air cargo business, points out an analyst. Of course, Blue Dart is responding to the competition. But the net impact is pricing pressure, which is reflected in softening realizations.

According to the management, the company is responding to market conditions through automation, technology enhancement and strengthening of network. Volumes have improved in the March quarter and it expects GST related changes to smoothen out by June, paving the way for recovery.

Still, prolonged slowdown and pricing pressure means expectations remain subdued. Earnings estimates are being pared by analysts. The stock lost about one-fifth of its value over the past year. Even after that, valuations remain rich. There are doubts if things will recover in a hurry. “We have trimmed our EPS estimates by 9-10% for FY19/FY20 to reflect lower revenue growth and margin expectation," points out Antique Stock Broking. “Even after the recent correction, Blue Dart trades at an expensive 47x (times) FY19E/37x FY20E EPS." EPS stands for earnings per share.

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