Uncertainty over lockdown, logistics cloud Blue Dart's near term prospects

In an otherwise bearish market, the title of Blue Dart Express (Blue Dart) jumped about 16% during the day Monday, before closing up 5.6% to around $ 2,103.85 a piece. News of the lifting of the supply ban on all essential and non-essential items in the states has improved investor sentiment. However, it may be too early to expect a full recovery in growth.

Factors such as state-level logistical disruptions, uncertainty over the lock-in period (affecting overall volumes), and delay in restoring discretionary demand are short-term business risks for Blue Dart, which provides courier, air and ground freight logistics solutions.

The national lockdown in the middle of the coronavirus pandemic disrupted the entire delivery system in the country (including air and surface), which had an impact on the activities of express delivery such as Blue Dart. Not only turnover, but the drop in volumes would also have an impact on its profitability over the next two quarters. “The drop in air and surface volumes would cancel the initiative to optimize costs and rationalize employees in the short term,” said analysts at ICICI Direct.

Although the company still supplies essential items, the contribution to revenue from these products for Blue Dart is not significant, analysts said. Thus, a recovery in aggregate demand, particularly for discretionary items, is crucial. However, according to some analysts, there is uncertainty about the length of the lockout period. Furthermore, even after the lockout period, it is unclear how long it will take for discretionary demand to recover.

In addition to demand, operational concerns – including a likely labor shortage – are another concern. While Blue Dart’s activity should remain weak until the first half of 2020-2021 (April-September 2020), a certain recovery is likely from the quarter of December 2020. However, the silver lining corresponds to the earnings expectations market share of small players. Since the latter would be more affected during the current crisis, the recovery would be relatively difficult for them. The jury is however absent.

For now, it is recommended that investors wait until the current difficult situation subsides. Although the stock (after a broader market drop, with the Sensex down about 26%) is down about 24% in the past month, and 42% from its 52-week high , at 44 times its estimated profits for EF21, it’s still not cheap.


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