In its latest report, Motilal Oswal Financial Services (MOFSL) issued a BUY recommendation for Blue Dart Express Ltd., with an upgraded target price of ₹9,900, offering a potential 16% upside. The recommendation is based on strong growth prospects driven by price hikes, increased capacity utilization, and expanding networks. Blue Dart is poised to leverage the festive season and ongoing improvements in its logistics operations to sustain long-term growth. The research suggests that the company's focus on operational efficiencies and new route additions will further enhance margins and profitability.

Price Hikes to Support Margins Amid Rising Costs

Blue Dart Express has announced price hikes of 9% to 12%, effective January 2025, to offset inflationary pressures and rising operational costs. These price increases are expected to help maintain and even improve its EBITDA margins, which are forecast to grow from 10.1% in FY25 to 13.0% by FY27. With improved demand and the upcoming festival season, the company anticipates comfortably passing these cost increases on to customers.

Capacity Utilization Boost from New Aircraft

The company’s recent investment in new aircraft is expected to pay off, as capacity utilization is projected to increase during the second half of FY25. As demand for logistics services picks up, particularly in the e-commerce and B2B segments, Blue Dart anticipates higher operational efficiencies. This increased utilization will contribute to margin expansion, particularly as new routes such as Guwahati ramp up.

Expanding in Surface Express: A Key Growth Driver

Blue Dart’s surface express segment currently accounts for 30% of total revenues and is expected to be a major growth driver in the coming years. The surface express market is anticipated to grow faster than the air express segment, owing to rising demand for logistics services across industries, especially in e-commerce. By expanding its network of routes and leveraging both air and ground infrastructure, Blue Dart is positioned to capture a larger share of the organized express logistics market.

Financial Performance and Forecasts

For FY25, Blue Dart's net sales are projected to reach ₹59.7 billion, growing at a 13.3% year-on-year rate, with revenues expected to hit ₹83.1 billion by FY27. EBITDA is forecast to improve substantially, reaching ₹10.8 billion by FY27, up from ₹6.0 billion in FY25. Adjusted profit after tax (PAT) is expected to grow at a robust CAGR of 16% over FY25-27, driven by strong revenue growth, margin expansion, and improved operational efficiencies. The company’s earnings per share (EPS) is forecast to rise from ₹137.1 in FY25 to ₹271.8 by FY27.

Valuations and Competitive Position

Blue Dart is currently trading at 62.3x FY25E earnings, with a forecasted reduction to 38.2x by FY26E and 31.4x by FY27E as earnings grow. Its Return on Equity (RoE) is expected to improve to 29.2% by FY26, making the stock attractive for long-term investors. The company’s leadership in the air express segment and its increasing share in the surface express business further strengthen its competitive positioning in the logistics sector.

Key Growth Catalysts

Several factors are expected to drive Blue Dart’s growth in the coming years:

Festive Season Demand: The company expects a surge in volumes as the festival season boosts consumer spending and e-commerce activities.
Network Expansion: The addition of new routes, such as Guwahati, will enable Blue Dart to serve more regions and enhance its reach across India.
E-commerce Growth: With e-commerce constituting one-fourth of Blue Dart’s revenue, the company is well-positioned to capitalize on the sector’s ongoing expansion, which is being fueled by rising consumer demand for faster deliveries.
Digital Integration: Blue Dart is enhancing its digital payments infrastructure, offering seamless payment solutions through multiple channels, further solidifying its presence in the e-commerce space.

Risks to Outlook

Although the overall outlook for Blue Dart remains positive, the report highlights several risks:

Rising operational costs could pressure margins if the company is unable to pass on the full extent of price increases to customers.
Global economic uncertainties could impact export logistics demand, potentially dampening the company’s growth in international routes.
Competition in the logistics sector may lead to pricing pressures, particularly in the e-commerce space, where margins are already tight.

Conclusion

Motilal Oswal’s ‘BUY’ recommendation for Blue Dart Express comes with strong conviction, underpinned by price hikes, network expansion, and improving operational efficiencies. With a target price of ₹9,900, the stock offers a 16% upside, making it an attractive investment for those looking to capitalize on India’s growing logistics and e-commerce sectors. The company's strong balance sheet, extensive network, and leadership in the air express segment position it well for sustained growth over the long term.