BlueDart Express - Initiating Coverage

Initiating Coverage
March 26, 2013

Rating matrix
Rating Target Target Period Potential Upside : : : : Hold | 2381 12 months 3%
BlueDart Express(BLUDAR)
On express growth path
| 2320
Blue Dart Express (BDE), the market leader in the air express segment (47% market share), has embarked on a journey of accelerated growth, likely to be driven by its superior infrastructure, technology and vast network. BDE has strong parentage (DHL owns 75% stake in Blue Dart) coupled with an owned fleet of aircraft, high service standards, pan-India presence and long term tie-ups with major corporates across various business segments. It is well poised to benefit from its first mover advantage and capture a larger pie of the steadily expanding air express (13% CAGR over CY12-CY15E) and ground express market (19% CAGR over CY12-CY15E). We expect revenue, EBITDA and PAT to grow at a CAGR of 18%, 22% and 19%, respectively, over CY11-15E. Leadership in air express segment to continue; ground express to consolidate BDE has a dominant market share of ~47% in the air express segment, nearly 4x its nearest competitor. We expect BDE to continue to maintain market leadership in the air express segment owing to its own fleet of aircraft enabling it to deliver time sensitive post and parcels efficiently to its vast corporate and retail clientele. On the other hand, we expect BDEs ground express segment to capture a higher share due to a shift from unorganised to organised players owing to an improvement in road infrastructure and implementation of GST. Competitive edge owing to inimitable infrastructure and pan-India presence BDEs fleet of seven aircraft and 7460 vehicles covers 33,739 locations via 20 ground hubs and 166 network routes providing it the competitive edge that enables it to have an advantage over existing domestic players and new entrants including MNCs trying to enter the industry. By virtue of its competitive head-start, it has been able to form tie-ups with corporates, which comprise ~94% of revenues providing strong revenue visibility. Valuations ripe at current fundamentals A debt-free balance sheet coupled with consistent revenue growth, improved EBITDA margin and asset light model enable BDE to catalyse its earning growth. We expect it to deliver earnings CAGR of 19% over CY11FY15E. The stock has traded at a one year average PE multiple of 29x and two year average PE multiple of 27x. We expect the earnings momentum to continue with improved cash flows and ascribe a multiple of 27x FY15E. We initiate coverage on BDE with a HOLD rating and a target price of | 2381.
Exhibit 1: Valuation Metrics
CY10 Netsales (| Crore) EBITDA(| Crore) Net Profit (|Crore) EPS (|) P/E (x) Price/Book (x) EV/EBITDA(x) ROCE(%) ROE(%) 1149.9 154.7 94.7 39.9 58.2 10.1 35.4 24.8 17.4 CY11 1492.3 176.7 124.2 52.3 44.4 8.3 31.0 23.3 18.7 FY13E* 2169.2 267.3 176.4 59.4 39.1 6.6 25.3 23.4 17.0 FY14E 2070.7 262.4 172.7 72.7 31.9 5.5 20.5 23.5 17.3 FY 15E 2447.4 319.5 209.6 88.2 26.3 4.6 16.4 24.0 17.5
YoY Growth (%)

YoY Growth Netsales EBITDA Net Profit EPS CY10 27.0 49.2 56.0 56.0 CY11 29.8 14.2 29.7 31.1 FY13E* FY14E FY 15E 16.3 21.0 13.8 13.7 19.3 22.7 22.3 22.3 18.2 21.7 21.4 21.4
* FY13 for 15 months
Valuation summary
CY10 PE(x) Target PE(X) EV to EBITDA(x) Price to Book(x) RONW (%) ROCE(x) 58.2 59.7 35.4 10.1 17.4 24.8 CY11 44.4 45.6 31.0 8.3 18.7 23.3 FY13E* 39.1 40.1 25.3 6.6 17.0 23.4 FY14E FY 15E 31.9 32.8 20.5 5.5 17.3 23.5 26.3 27.0 16.4 4.6 17.5 24.0
* FY13 for 15 months
Stock data
Market Cap (| cr) Debt (CY11) (| cr) Cash (CY11) (| cr) EV (| cr) 52 Week H/L (| cr) Equity Capital (| cr) Face Value (|) DII Holding (%) FII Holding (%) 5512.3 0 40.3 5472.1 2630/1383 23.76 10 9.67 3.34
Price movement
6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Apr-12 Jul-12 Oct-12 Dec-12 BlueDart (R.H.S) Nifty (L.H.S) 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500 Mar-13
Analysts name
Bharat Chhoda bharat.chhoda@icicisecurities.com Soumojeet Kr Banerjee soumojeet.banerjee@icicisecurities.com
* FY13 for 15 months, FY13E EPS is annualised Source: Company, ICICIdirect.com Research
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Exhibit 2: Shareholding Pattern

Shareholder Promoter FII DII Others Holding (%) 75.0 3.3 9.7 12.0
Company background BlueDart Express (BDE) was founded in 1983. Global logistics major DHL acquired an 81.03% stake in BDE in 2005. In 2012, DHL diluted ~6.03% stake in BDE through an offer for sale to comply with the Sebi requirement of minimum public holding of 25% for listed corporates. BDE is the countrys premier integrated package distribution company, with a presence in over 33,739 locations domestically and 220 countries worldwide. The company has one subsidiary and an associate company namely Concorde Air Logistics Ltd and Blue Dart Aviation Ltd (BDA) with 100% and 49% stake, respectively. BDA is the only scheduled cargo airline in India providing express cargo services to BDE. Blue Dart has always been a frontrunner in pioneering technology to empower customers with innovative solutions and a superior customer service. BDE has been awarded Superbrand status 2011 (six years in a row), Starbrand status 2011 (twice in a row) and Powerbrands 2011 (twice in a row).
Exhibit 3: Shareholding Trend
100 80 60 40 20 0 Q1CY12 Q2CY12 Q3CY12 FII DII Q4CY12 Others
Promoter
Source: Company, ICICIdirect.com Research
Exhibit 4: Chronology of BDE
Inception. First domestic and international onboard courier
Goes public with equity offer of 2.55 million shares
Induction of fourth and fifth B 737-200s express freighters. DHL acquired 81.03% shareholding in 2005. First to induct two B757-200
1983-84
1991-93
1994
1996-2002
2004-06
2007-09
2009-2012
Introduced track and trace technology. Introduced employee and customer satisfaction survey. E-mail network started
Inducted two B737s. Website launched in 2000. Induction of third B 737-200 in 2001 Sales alliance with DHL in 2002
Inducted third B757-200. Inducted fourth B757 on 25th anniversary of BDE. Introduced multiple products, awarded Superbrand. Fist integrated BDE-DHL facility at Bengaluru airport
ISO9001-2008 certified. Introduced net promoter score. Pilots smart truck. Launches GOLREEN. Inducts fifth B757
Management Profile
Sharad Upasani (Chairman): Previously associated with IMF, Government of India and Government of Maharashtra. Anil Khanna (Managing Director): Overall 32 years of experience and 20 year plus experience with BlueDart Express. Yogesh Dhingra (Finance Director & CFO): Overall 28 years of experience and 20 year plus experience with BlueDart Express. Tulsi Mirchandaney (MD BlueDart Aviation): Overall 38 years of experience and 17 year plus experience with BlueDart Express. Malcolm Monteiro (Director): Senior VP and Area Director, South Asia, DHLE, previously MD BlueDart Express.
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Page 2
Investment Rationale
Advantage BDE in absence of domestic integrated players
The express industry in India is estimated at ~| 10,870 crore in FY12 and is expected to grow at an average rate of 17% to | 17,450 crore by FY15. The industry is highly fragmented with ~2500 players but very few integrated players. In the organised segment, the postal department together with large players constitutes 72%, 15% is held by semiorganised players while the residual is with other smaller players. Major domestic players in the organised segments like BlueDart, DTDC, FirstFlight, etc. in collaboration with global majors like DHL, FedEx, TNT and UPS constitute the organised express industry in India. BlueDart with strong parentage of German express giant DHL and own fleet of aircraft has an end-to-end delivery network covering 166 network routes and 20 ground hubs together with seven air network stations. BlueDart is the undisputed market leader with 47% market share in the air express segment and commands ~ 13% share in the ground express segment. BDEs revenue is mainly driven by the institutional business constituting ~94% of total revenue with the remainder coming from retail clients. We believe BDE is well poised to benefit from its first mover advantage and capture a larger pie of the steadily expanding air express (13% CAGR over CY12-15) and ground express market (19% CAGR over CY12-15).
Air cargo: Burgeoning segment

The total domestic air cargo carried (belly and scheduled) grew at a CAGR of 11% over 2001-11 reaching 483,000 tonnes. Air cargo hauled by scheduled cargo operators in India grew at a CAGR of 17% over the last decade. Over 20 years, scheduled cargo grew at a CAGR of ~27%. However, the CAGR in scheduled cargo over the past five years has been considerably high at 24%. The overall belly cargo segment has also grown considerably in the last decade at a healthy CAGR of 10% signalling growth in the air cargo segment. BlueDarts predominance in the promising scheduled cargo segment, which has seen significant growth over the past two decades, facilitates the company to maintain its lead in the air express industry.
Exhibit 5: GDP growth against air cargo growth
Air cargo growth has high correlation and elasticity with GDP growth. During the global meltdown in 2009, air cargo volumes declined sharply. However, with stabilisation of the global trade scenario, air cargo volumes have bounced back in 2010 and 2011
25 20 15 Percentage 10 5 0 -5 -10 GDP RATE Total Domestic air cargo growth 2006 2007 2008 2009 2010 2011
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Exhibit 6: Category wise air cargo growth

Over the last decade, domestic scheduled cargo has grown at a CAGR of 17% whereas domestic belly cargo and international belly cargo have increased at a CAGR of 10% and 11%, respectively, over 2001-02 to 2010-11
500 400 000 tonnes 300 200 100 0 Scheduled cargo operators (Domestic) Total Domestic Cargo carried (Belly Cargo) 2001-02 2010-2011 International Cargo (Belly cargo) 100.7 24.8 160.6 97.5 382.0 262.6
Source: DGCA, ICICIdirect.com Research
Exhibit 7: Air cargo distribution trend

50 40 Percentage
Scheduled cargo growth has been robust albeit on a lower base. However, it has shown significant resilience to the downturn. Scheduled cargo in India is mainly shared by BlueDart, Deccan Cargo and Express Logistics
30 20 10 0 -10 -20 Scheduled cargo operators growth Total Domestic cargo growth Belly cargo growth 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: DGCA, ICICIdirect.com Research
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BDEs pole position in air express segment to continue amid growing ground express segment
The organised segment of the express industry constitutes 48%, which is further segregated into air express (AE) and ground express (GE). In the organised segment, ground express comprises 55% market share whereas the air express industry forms 45%. As of 2012, air express has a market size of | 2340 crore and is expected to grow at a CAGR of 13% in FY12-15E. Ground express with a market size | 2870 crore is poised to grow at a faster CAGR of 19% during the same period.
Exhibit 8: Courier industry: Organised & unorganised
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 9260 8190
Exhibit 9: Air and ground express sector size

6000 5000 4000 | Crores 3000 2000 1000 0 2400 2040 2870 2340 3420 2650 4830 4060 2990 3360
| Crores
5660 5210
6648 6070
7830 7050
2012
2013 Organised
2014 Unorganised
2015
2011
2012E
2013E
2014E
2015E
Organised Air Express Sector Size
Organised Ground Express Sector Size
BDE being an early mover holds a market share of ~47% in the air express segment making it the virtual leader in the category with the nearest competitor commanding ~12% market share. We believe BDE would continue to maintain its pole position in the air express segment due to its early mover advantage and inherent benefit due to owned fleet of aircraft and an extensive network built over the years. Moreover, BDE also commands a healthy market share of ~13% in the ground express segment. We believe BDE will be able to leverage its brand and unmatched reliability record to garner volumes in the rapidly growing ground express segment.
Exhibit 10: Air express market share - CY2011 Exhibit 11: Ground express market share - CY2011
19.2 11.8
28.4 46.1
14.8
28.0
12.6 12.9
Blue Dart Competitor 1
26.2
Competitor 2 Competitor 3 Others
Blue Dart
Competitor 1
Competitor 2
Others
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Plethora of products to address myriad customer requirements

The USP for the express industry is its ability to provide door-to-door time bound services both in terms of documents and non-documents. BDE, with its suite of integrated solutions, provides services right from domestic door-to-door to international door-to-door through its parent DHLs worldwide network. As an integrated player, BDEs 19 core offerings distributed across express services, value added services and air freight services cover a gamut of industry requirements. Its bouquet of offerings across ground and air express make BDE a preferential partner for institutions that require all services under one roof.
Exhibit 12: Core service offerings
Page 6
Pioneered technology enhances transparency, optimises operational efficiency

BDE being a pioneer in the technology segment has many firsts to its name. Technology is used to enhance customer interface together with synergising internal processes. State-of-the-art technology like weight dimension labelling (WDL) for accurate weight measurement, GPS for real time shipment visibility and also new technology like radio frequency identification (RFID) to ensure speed, safety and accuracy confirm swifter and precise information access to customers. BDE has developed technology tools that provide vital inputs to improve operational efficiency not only for internal applications but also to provide customers seamless information about their shipments. This is imperative in a business where majority of customers belong to the institutional segment and high value shipments are handled.
Exhibit 13: State-of-the-art technology
Page 7
Unparalleled network, robust infrastructure catering across India

BDE has the distinction of having one of the most extensive domestic coverage networks with over 33,739 service locations. The company has a dedicated aviation system with seven freighters (five B-757s and two B737s) with a daily haulage capacity of 375 tonnes together with seven air network stations across metro cities. In the ground segment, BDE applies a combination of a hub and spoke and centipede model. The ground express segment has a robust fleet size of 7460 vehicles with 274 touch points serving 166 network routes and 20 ground hubs. Extensive reach coupled with optimised flight scheduling ensures superior transit time, thereby improving customer value proposition. Among its peers, BDE has more than three times as much coverage as its nearest competitor. Such extensive coverage coupled with time-bound delivery make BDE an attractive proposition and partner for business transactions.
Exhibit 14: BlueDart leads the way.
BlueDart Domestic locations International location Work force 33739 220 8109 Fedex India 879 220 7500 DTDC 10000 220 5500
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Exhibit 15: Network Coverage
Institutional focus catering to niche industry requirement

BlueDart Express derives 94% of its business from corporate institutions and the remaining 6% from the retail segment. As the majority of the business flows from institutions with whom BDE has formal agreements, it provides enhanced revenue visibility and lower tonnage volatility. Some major sectors that contribute to the business of BDE are BFSI, pharma, IT, auto, retail and e-commerce. To cater to the demands of key customer sectors, BDE has developed focused solutions to ensure sustainable growth. Products such as time definite delivery, temperature controlled logistics, dart surface line, etc. have been developed and customised according to sector requirement.
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Exhibit 16: Customised industrial offerings
In the institutional business, the BFSI sector is a major contributor to revenue for BDE followed by IT, auto and pharma. These sectors are poised to grow at a robust rate over the next three or four years. Another segment that is expected to play a pivotal role for the express industry is the e-commerce segment, which is growing at a significant rate and would provide a massive push to the express freight segment.
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Exhibit 17: Sector-wise size and expected growth till 2015

Current Industrysize (|crore) Retail Apparel Textile Auto Sector Pharma Banking Ecommerce 2851200 1895400 3250800 425000 150000 5200000 8640 Growth (CAGR) 11% 9% 7% 14% 13% 16% 53%
Exhibit 18: Revenue break-up
6%
94%
Institutional
Retail
Source: Forrester research, ICICIdirect.com Research
Implementation of GST to boost volumes for organised players

Implementation of the Goods and Services Tax (GST) is expected to break the shackles of dual taxation in India, thereby relieving inefficiencies in the system. With a single rate being applied across the country, the whole of India will act as a single market, thereby reducing taxes in manufactured goods and impacting the pricing of the product. In the absence of a cascading taxation system, manufacturers do not have to maintain multiple warehouses to save inter-state tax. This will lead to consolidation of warehouses across the country. This consolidation will mitigate redundancy in the supply chain and improve efficiency in the operations with better logistics management. This consolidation of warehouses augurs well for logistics companies as transportation lot sizes increase leading to better pay load factor and faster turn around time (TAT).
Exhibit 19: Impact on warehousing
Source: ICICIdirect.com Research
Page 11
Further, with implementation of GST, there will be a transition from the unorganised segment to the organised segment in the logistic sector, as participants will insists on invoices for transactions to benefit from input credit set-off. This transition to the organised segment bodes well for players like BDE as more institutional participants transit through organised players increasing their volume.
Exhibit 20: Transition to organised sector
Case A: Present Scenario- Companies have multiple warehouses to counter CST
Producer: Landed Cost: | 500 Margin: | 50 CST: |0 Selling Price: | 550
Warehouse: Landed Cost: | 550 Warehouse cost: |10 Margin: | 0 VAT: | 22.4 Selling Price: | 582.4
Wholesaler Landed cost: | 582.4 Margin: | 17.6 VAT credit: | 22.4 VAT: | 24 Selling Price: | 601.6
Retailer Landed cost: | 601.6 Margin: | 23.4 VAT credit: | 24 VAT: | 25 Selling Price: | 626
Case B: Post GST Scenario- Zero CST on inter-states sales

Producer: Landed Cost: | 500 Margin: | 55 Selling Price: | 555 Wholesaler Landed cost: | 555 Margin: | 20 VAT: | 23 Selling Price: | 598 Retailer Landed cost: | 598 Margin: | 25 VAT credit: | 23 VAT: | 25 Selling Price: | 625
Source: ICICIdirect.com Research
E-commerce: High potential business segment

The e-commerce business in India is expected to grow five-fold from US$1.6 billion in 2012 to US$8.8 billion in 2016. With the continuous increase in internet penetration (currently around 10%), e-commerce growth is expected to get accentuated in non-metro cities as well. Online retailers are building warehouses and ascertaining shipping options that would work in non-metro and rural areas. In order to capture the growing and nascent customer base, e-commerce retailers provide free time bound delivery to its customers. As for budding e-commerce retailers, captive integrated logistics is not feasible. Therefore, to provide its customers with effective service, these companies collaborate with express service providers to facilitate last mile connectivity. Another characteristic of the e-commerce business that is predominant in India is payment through cash-on-delivery (COD) mode. Around 23% of online shoppers in metropolitan India choose to pay through the COD mode. This mode of payment is imperative in the customer trust building mechanism. However, return rates are higher in such transactions. Express companies like BlueDart stand to gain from such transactions as these increase their volumes. Further, for express companies, the risk of default of payment from the e-commerce companies is mitigated in case of COD transaction as the payment lies with express companies. As the ecommerce segment forms ~10% of the total topline for BDE and is expected to grow further, BDE attunes its strategy and products according to the requirements of the sector.
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Exhibit 21: E-commerce market size

10 8 US$ Billion 6 4 2 0 2012 Market Size ($ Bln) 2016 1.6 8.8
CAGR 77%
Source: Forrester Research, ICICIdirect.com Research
Exhibit 22: Payment options through online shopping

23 44
24
41 Credit card Debit card Online bank transfer Cash on delivery
Source: Forrester Research, ICICIdirect.com Research
Page 13
Financials
Tonnage growth to drive revenues
BDEs presence in the fastest growing segment of the logistics sector and its dominant position in air express with continuously expanding presence in the ground express segment would enable it to garner higher tonnage. We expect BDE to log tonnage growth at a CAGR of 18% over CY11 to FY15E to 698,500 tonnes. We believe BDEs air express and ground express segments tonnage will grow at a CAGR of 11% and 20%, respectively, over CY11 to FY15E, respectively. Further, according to our expectation, the ground express segment would gain higher traction, going ahead, due to implementation of GST, better infrastructure facilities and higher outsourcing to 3PL players. We expect revenue growth from the ground express segment (25% CAGR over CY11 to FY15E) to outpace the air express segment growth (16% CAGR over CY11 to FY15E).
Exhibit 23: Tonnage growth momentum to continue
800 700 600 500 400 300 200 100 0 698.5 537.2 338.0 423.0 | C ro re 591.0
Exhibit 24: Steady growth in revenue

2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 CY10 CY11 FY13E (15 mths) Revenues FY14E FY 15E 1,149.9 1,492.3 2,169.2 2,070.7 2,447.4
CY10
CY11
FY13E (15 mths)
FY14E
FY 15E
Tonnage handled (000 tonnes)
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research
Exhibit 25: Air & ground express tonnage trend

700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0
Exhibit 26: Ground express segment growth to outpace air express

1,900 1,700 1,500 | C ro re 1,300 1,100 900 700 500 300 CY11 FY13E (15 mths) Air Express FY14E Ground Express FY 15E 380.3 509.0 605.2 1,099.8 749.4
575.2 332.0 91.0 412.1 480.9
1,659.3 1,464.5
1,697.0
125.1
110.1
123.3
CY11
FY13E (15 mths)
FY14E
FY 15E
Air Express tonnage (000 tonnes) Ground Express tonnage (000 tonnes)
Page 14
Enhanced EBITDA margin to fuel EBITDA growth

BDEs business model is such that it gets better operating leverage with growth in volumes as a significant portion of its expenses are fixed and enhanced volumes enable it to achieve operational efficiencies driving improvement in EBITDA margin. Also, BDEs operating margin is cushioned from an increase in fuel cost, which forms around ~ 18-20% as the company employs a surcharge mechanism, which virtually insulates it from changes in fuel cost. We expect BDEs EBITDA to increase at a CAGR of 22% over CY11 to FY15E driven by a 130 bps improvement in the EBITDA margin.
Exhibit 27: EBITDA margin to improve from FY13E
350 300 250 | Crore 200 150 100 50 0 CY10 CY11 FY13E(15 mths) EBITDA FY14E FY 15E 10% 154.7 176.7 11.8% 12.3% 13.5% 267.3 262.4 12.7% 319.5 13.1% 14% 13% 12% 11%
EBITDA Margin (%)
Exhibit 28: Fuel surcharge chart

BDE via fuel surcharge mechanism passes on the rise in fuel charge to customers, thereby keeping margins intact
15.00 10.00 5.00 0.00 Oct-08 Oct-09 Oct-10 Oct-11 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Oct-12 -5.00 -10.00 -15.00 -20.00 Change in ATF price Change in surcharge Feb-13
Page 15
Asset-light model, debt free status to enable steady improvement in PAT margin
BDE employs an asset light model as around 80% of its vehicle fleet is outsourced and retail operations are on a franchise basis whereas warehouses, hubs and aircraft are on a lease basis. Depreciation forms less than 2% of net sales. With increased volumes, the same is expected to reduce from 1.7% of net sales in CY10 to 1.4% in FY15E. With consistent revenue growth, higher EBITDA generation, low depreciation expenses and a debt-free status, we expect PAT to grow at a CAGR of ~19% over CY11-FY15E to | 209 crore and PAT margin to improve to 8.5% in FY15E from 8.3% in CY11.
Exhibit 29: PAT to grow consistently from FY13E to FY15E
250.0 200.0 | Crore 150.0 100.0 50.0 0.0 CY10 CY11 FY13E(15 mths) FY14E FY 15E 124.2 94.7 8.2% 8.3% 8.1% 176.4 172.0 8.3% 208.9 8.5% 8.6% 8.5% 8.4% 8.3% 8.2% 8.1% 8.0% 7.9%
Net Profit
Net Profit Margin (%)
Return ratios to remain stable

We expect return ratios to remain stable over CY11-FY15E. Driven by steady growth in profitability, we expect BDE to report an RoE and RoCE of 17.5% and 24.0% in FY15E, respectively.
Exhibit 30: Return ratios to improve from FY13E
30 25 20 15 10 5 0 CY10 CY11 FY13E(15 mths) ROE (%) ROCE(%) FY14E FY 15E 17.4
24.8 18.7
23.3 17.0
23.4 17.3
23.5 17.5
24.0
Page 16
Risks and concerns

Regulatory concern-Draft Indian Postal Bills restrictive proposals
The draft Postal Bill 2011 proposes to give exclusive reservation to the Indian postal department for delivering letters under 150 gm and express mail under 50 gm with licensed express industry players being allowed to deliver the same at twice the rate of speed post service of the postal department. Any reservation or pricing restriction regulation, if implemented, will have a detrimental impact on express industry players as it would put them at a competitive disadvantage vis--vis the postal department.
Enhanced competition from large local and global players

The express industry being the fastest growing segment of the logistics industry is witnessing increasing competition with the entry of large local and global MNC players. Many global MNC players have lined up huge expansion plans for India to capture a share of the rapidly growing market. However , we believe BDE, due to its first mover advantage, has a competitive edge due to its pan-India network, own fleet of aircraft and savvy technology that enable it to deliver time-bound and reliable solutions to customers and maintain its market share.
High correlation to GDP growth

The express industry has high correlation with the GDP growth rate. Historically, the industry has grown by more than 2x GDP growth rate. However, any moderation in the GDP growth rate is likely to lower the industry growth rate and negatively impact BDEs revenues and profitability, since the industry is characterised by high operating leverage.
Volatility in crude oil prices

Fuel (crude oil/ATF) charges form a substantial portion of expenses for BDE. Any significant fluctuation can impact the operational performance. However, to mitigate the risk, BDE follows a fuel surcharge based price mechanism. This virtually insulates it from the impact of fluctuation in crude oil prices.
Increase in preference for e-statements compared to physical documents:

There has been an increase in the number of people opting for estatements rather than physical documents delivered to them. Any significant surge in these customer behavioural characteristics can impact document volumes for the express industry.
Page 17
Valuation
BDEs strong institutional clientele virtually ensures consistent cargo volume growth enabling steady growth in revenue, going ahead. Considering strong revenue visibility, asset light model and debt-free capital structure, we have valued BlueDart Express on price to earnings multiple over FY15E. At the current price, BDE is trading at 32x FY14E and 26x FY15E. The stock has traded at an average PE multiple of 29x over the past year and 27x average PE multiple over the last two years. Going ahead, we expect BDE to post sturdy earnings growth. Also, we expect free cash flow to grow at a CAGR of 30% over CY11-FY15E and ascribe a multiple of 27x FY15E. However, given BDEs present rich valuations that factor its robust fundamentals, we initiate coverage on BlueDart Express with a HOLD rating and a target price of | 2381.
Exhibit 31: PE multiple band
2500.00 2000.00 1500.00 1000.00 500.00 0.00 May-07 May-08 May-09 May-10 May-11 May-12 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Close -Unit Curr
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
Exhibit 32: FCFE vs. price

120 100
| Crores
We expect the free cash flow to increase at a CAGR of 30% in CY11-FY15E
80 60 40 20 0 2005 2006 2007 2008 FCFE 2009 Price 2010 2011
1800 1600 1400 1200 1000 800 600 400 200 0
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Financial summary
Profit and loss statement
(Year-end March) Total operating Income Growth (%) Aircraft CharterCost Other Aircraft Expenses Fuel Charges Other Operating Expenses Employee Cost Other Expenses Total Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Total Tax PAT Growth (%) EPS (|) CY10 CY11 1,149.9 1,492.3 29.8 33.6 35.0 158.5 226.2 192.1 261.2 364.5 485.7 150.1 185.7 96.3 121.7 995.2 1,315.5 154.7 176.7 14.2 19.4 21.8 0.0 0.0 5.4 24.8 140.7 179.8 46.1 57.0 94.7 124.2 29.7 39.9 52.3 FY13E 2,169.2 16.3 36.4 325.4 368.8 715.8 271.1 184.4 1,901.9 267.3 21.0 24.4 0.0 14.0 256.9 82.2 176.4 13.8 59.4 FY14E 2,070.7 19.3 37.8 352.0 362.4 641.9 238.1 176.0 1,808.2 262.4 22.7 28.4 0.0 17.3 251.4 80.5 172.7 22.3 72.7 (| Crore) FY15E 2,447.4 18.2 37.8 440.5 440.5 707.3 281.4 220.3 2,127.8 319.5 21.7 32.1 0.0 17.8 305.1 97.6 209.6 21.4 88.2
Cash flow statement

(Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Others CF from financing activities Net Cash flow Opening Cash Closing Cash CY10 CY11 94.7 124.2 19.4 21.8 -93.9 -45.8 20.2 28.7 0.0 0.0 40.4 128.8 0.0 22.1 -30.9 -47.7 25.9 -98.4 -5.0 -123.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 35.4 4.9 0.0 35.4 35.4 40.3 FY13E 176.4 24.4 -67.0 67.1 0.0 200.9 0.0 -63.3 -78.2 -141.4 0.0 0.0 0.0 0.0 59.5 40.3 99.8 FY14E 172.7 28.4 -82.6 -14.1 0.0 104.3 0.0 -60.0 -8.0 -68.0 0.0 0.0 0.0 0.0 36.4 99.8 136.1 (| Crore) FY15E 209.6 32.1 -79.5 33.3 0.0 195.5 0.0 -60.0 -9.7 -69.7 0.0 0.0 0.0 0.0 125.8 136.1 261.9
Source: FY13 for 15 months Company, ICICIdirect.com Research
Source: FY13 for 15 months FY13E EPS is annualised Company ICICIdirect.com Research
Balance sheet
(Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Long term Provisions Other Long term liabilities Deferred Tax Liability Total Liabilities Assets Gross Block Less: Acc Depreciation Impairment Net Block Capital WIP Total Fixed Assets Non-current Investments Long term loans & advances Deferred Tax Asset Inventory Debtors Loans and Advances Other Current Assets Cash Current investments Total Current Assets Creditors Other liab & Provisions Total Current Liabilities Net Current Assets Application of Funds CY10 23.8 521.3 545.1 0.0 0.0 0.0 21.62 566.7 327.5 143.8 0.0 183.7 26.7 210.5 96.9 112.4 3.5 2.2 153.3 85.9 0.0 35.4 0.0 276.8 96.9 36.5 133.4 143.4 566.7 CY11 23.8 640.0 663.7 0.0 0.0 0.0 21.96 685.7 395.2 162.1 0.0 233.2 6.7 239.9 74.7 201.9 3.8 2.6 189.0 95.6 0.0 40.3 0.0 327.4 130.0 32.1 162.0 165.4 685.7 FY13E 23.8 808.2 832.0 0.0 0.0 0.0 22.00 854.0 465.2 186.5 0.0 278.7 70.0 348.7 74.7 201.9 3.8 5.9 199.7 148.6 0.0 99.8 0.0 454.0 196.1 33.0 229.1 224.9 854.0 FY14E 23.8 972.9 996.6 0.0 0.0 0.0 22.03 1,018.7 535.2 214.8 0.0 320.4 60.0 380.4 74.7 201.9 3.8 5.7 261.0 170.2 0.0 136.1 0.0 573.0 181.5 33.5 215.0 357.9 1,018.7 FY15E 23.8 1,172.7 1,196.5 0.0 0.0 0.0 22.05 1,218.5 595.2 247.0 0.0 348.2 60.0 408.2 74.7 201.9 3.8 6.7 308.4 201.2 0.0 261.9 0.0 778.2 214.6 33.8 248.3 529.9 1,218.5
Key ratios
(Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio CY10 39.9 48.0 229.4 1.0 14.9 13.5 12.2 8.2 0.7 48.7 30.8 17.4 24.8 32.8 58.2 35.4 4.8 4.8 10.1 0.0 0.0 2.1 2.1 CY11 52.3 61.4 279.3 2.0 16.9 11.8 12.0 8.3 0.6 46.2 31.8 18.7 23.3 28.2 44.4 31.0 3.7 3.7 8.3 0.0 0.0 2.0 2.0 FY13E 59.4 84.5 350.2 3.0 42.0 12.3 11.8 8.1 1.0 42.0 33.0 17.0 23.4 29.6 39.1 25.3 3.1 2.5 6.6 0.0 0.0 2.0 2.0 FY14E 72.7 84.6 419.5 2.9 57.3 12.7 12.1 8.3 1.0 46.0 32.0 17.3 23.5 29.8 31.9 20.5 2.6 2.7 5.5 0.0 0.0 2.7 2.6 FY15E 88.2 101.7 503.6 3.5 110.2 13.1 12.5 8.6 1.0 46.0 32.0 17.5 24.0 33.4 26.3 16.4 2.1 2.3 4.6 0.0 0.0 3.1 3.1
Source: FY13E EPS is annualised Company, ICICIdirect.com Research
Source: FY13 for 15 months, Company, ICICIdirect.com Research

ISIEmergingMarketsPDF in-iimahdvishwa from 203.200.225.151 on 2013-11-24 02:37:07 EST. DownloadPDF.
Downloaded by in-iimahdvishwa from 203.200.225.151 at 2013-11-24 02:37:07 EST. ISI Emerging Markets. Unauthorized Distribution Prohibited.
Page 19
Annexure: 1
Express Industry: Flow of Consignment
Exhibit 33: Flow of Consignment
Source: Crisil, ICICIdirect.com Research
Page 20
Annexure: 2
Industry Profile
Exhibit 34: Shipment profile: Volume
80 Percentage 60 40 20 0 Document Non-Document 69 31
Percentage
Exhibit 35: Shipment profile: Value

70 60 50 40 30 20 10 0
64 36
Document
Non-Document
Source: Crisil, ICICIdirect.com Research Source: Crisil, ICICIdirect.com Research
Exhibit 36: Shipment under 150 gram

90 80 70
Exhibit 37: Modal split for domestic shipment

90 80 70 60 50 40 30 20 10 0 82
Percentage
Percentage
60 50 40 30 20 10 0 Documents Non-Documents 20 80
55 45
18
Air Documents
Surface Non-Documents
Page 21
Exhibit 38: Shipment profile: Volume (domestic & international)

100 90 80 70 Percentage 50 40 30 20 10 0 Domestic 14 International
Exhibit 39: Shipment profile: Value (domestic & international)

60 50 Percentage 40 30 20 10 0 Domestic International 57 43
60 86
Exhibit 40: Shipment Profile: Domestic volume

80 70 60 Percentage
Exhibit 41: Shipment Profile: International volume

60 50 Percentage 40 30 20 10 0 57 43
50 40 30 20 10 0 Documents Non-Documents 71
29
Documents
Non-Documents
Page 22
Exhibit 42: Distribution of domestic shipment

35 30 Percentage 25 20 15 10 5 0 Intra-City Top 4 Metros Document Other large Rest of India cities Non-Document 33 32 33 32 22
Exhibit 43: Distribution of international shipment

35 30 Percentage 27 20 23 19 19 19 16 15 10 25 20 15 10 5 0 USA Europe Middle East S-E Asia Rest of world 31
19
15
13
Document
Non-Document
Exhibit 44: Delivery timelines

35 30 Percentage 25 20 15 10 5 0 Within 24 Hrs 24-48 Hrs 48-72 Hrs More Than 72 Hrs 11 21 32 31 25 26 23
Exhibit 45: Mode of shipment

120 100 Percentage 80 60 40 20 0 Air 37 42 21 0 Surface-only road Domestic 0 Surfacerail+road
30
100
Domestic
International
International
Page 23
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey
Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com
pankaj.pandey@icicisecurities.com
ANALYST CERTIFICATION
We /I, Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees (ICICI Securities and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
Page 24

BlueDart Express - Initiating Coverage

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Initiating Coverage

March 26, 2013

YoY Growth (%)

* FY13 for 15 months

* FY13 for 15 months

ISIEmergingMarketsPDF from 203.200.225.151 ICICI Securities Ltdin-iimahdvishwa | Retail Equity Research

on 2013-11-24 02:37:07 EST. DownloadPDF.

Exhibit 2: Shareholding Pattern

Exhibit 3: Shareholding Trend

100 80 60 40 20 0 Q1CY12 Q2CY12 Q3CY12 FII DII Q4CY12 Others

Source: Company, ICICIdirect.com Research

Exhibit 4: Chronology of BDE

Inception. First domestic and international onboard courier

Goes public with equity offer of 2.55 million shares

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Air cargo: Burgeoning segment

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Exhibit 6: Category wise air cargo growth

Source: DGCA, ICICIdirect.com Research

Exhibit 7: Air cargo distribution trend

Source: DGCA, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Exhibit 9: Air and ground express sector size

Organised Air Express Sector Size

Organised Ground Express Sector Size

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Plethora of products to address myriad customer requirements

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Pioneered technology enhances transparency, optimises operational efficiency

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Unparalleled network, robust infrastructure catering across India

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Exhibit 15: Network Coverage

Source: Company, ICICIdirect.com Research

Institutional focus catering to niche industry requirement

Unauthorized Distribution Prohibited.

Exhibit 16: Customised industrial offerings

Source: Company, ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Exhibit 17: Sector-wise size and expected growth till 2015

Exhibit 18: Revenue break-up

Source: Forrester research, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Implementation of GST to boost volumes for organised players

Source: ICICIdirect.com Research

Unauthorized Distribution Prohibited.

Case A: Present Scenario- Companies have multiple warehouses to counter CST

Producer: Landed Cost: | 500 Margin: | 50 CST: |0 Selling Price: | 550

Case B: Post GST Scenario- Zero CST on inter-states sales

Source: ICICIdirect.com Research

E-commerce: High potential business segment

Unauthorized Distribution Prohibited.

Exhibit 21: E-commerce market size

Source: Forrester Research, ICICIdirect.com Research