Blue Dart share price jumps 7%; Motilal Oswal upgrades the stock to a buy, sees a 20% upside

Blue Dart Express share price rose almost seven per cent in intraday trade after the domestic brokerage firm Motilal Oswal Financial Services upgraded Blue Dart Express stock to a 'buy' from a 'neutral', with a target price of ₹8,040, implying a 20 per cent upside.

The stock opened at ₹6,905.05 against the previous close of ₹6,743.30 and rose 6.8 per cent to its intraday high of ₹7,200. Meanwhile, equity benchmark Sensex hit its fresh all-time high of 63,588.31 in trade.

Blue Dart shares are down 13 per cent this year so far (as of June 20 close) against a 4 per cent gain in the benchmark Sensex. The stock hit its 52-week high of ₹9,639.45 on October 4, 2022, and a 52-week low of ₹5,633 on May 8, 2023.

Motilal Oswal is positive about the stock as it believes factors such as lower aviation turbine fuel (ATF) prices, aircraft additions and the company's focus on increasing market share in e-commerce will augur well.

The brokerage firm highlighted that for an express logistics airline such as Blue Dart Express, the cost of aviation turbine fuel accounts for about 40 per cent of direct operating costs. ATF prices usually move in sync with Brent Crude prices.

“In early FY23, ATF surged in line with Brent, but it did not come down when Brent prices declined in the last few quarters. As a result, Blue Dart witnessed an under-recovery of fuel surcharge, which affected its margins in FY23. However, ATF prices have significantly corrected recently, which should boost margins for BDE going forward,” said Motilal Oswal.

Moreover, the brokerage firm underscored that Blue Dart Express has added two new aircraft to cater to tier-II and tier-III cities as it sees a healthy demand outlook in these cities for the long term. Blue Dart Express would move some of the belly cargo capacity, for which it uses third-party aircraft, to new aircraft.

“The company has added two Boeing 737 aircraft in FY23 to cater to a growing demand for Air Express. The two aircraft with 18-tonne capacity (30-tonne capacity in existing aircraft) will cover Tier II and Tier III cities,” Motilal Oswal said.

“The robust network will help it capitalise on the growth opportunity in the express logistics space. We expect Blue Dart Express to clock a 12 per cent volume CAGR during FY23-25, supported by strong growth in the road and air segments,” Motilal Oswal said.

Motilal Oswal also highlighted that Blue Dart Express enjoys a nearly 60 per cent market share in the organized Air Express segment (as of FY22) and has been gaining market share in the Surface Express segment.

Motilal said e-commerce plays a crucial role for Blue Dart Express as it accounts for one-fourth of the company's total revenue. Blue Dart Express' strong presence and focus on serving the e-commerce market allow it to leverage the growing online shopping trends.

“With lower ATF prices and its annual general price increase effective from Jan’23, we expect Blue Dart Express’ margins to improve going forward. As the capacity utilization of new aircraft ramps up, we expect the company’s EBITDA margin to rise to 13-14 per cent from the second half of FY24 onward from the current level of 10-11 per cent,” Motilal Oswal said.

“We expect Blue Dart Express to clock a revenue CAGR of 14 per cent, EBITDA CAGR of 21 per cent and PAT CAGR of 26 per cent during FY23-25. With an improved outlook and a nearly 30 per cent correction in the stock price from the highs seen in October 2022, we believe the stock is now attractively valued,” said Motilal Oswal.

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Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.