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Logistics Industry future in India

The logistics market in India is foretasted to grow at a CAGR of 10.5% between 2019 and 2025. It has been awarded infrastructure status which has made it easier for investment inflows and has become a major growth driver of the logistics industry. eCommerce is another major segment that is expected to support the growth of the logistics industry during the forecast period. 

In India, this sector comprises 14% of gross domestic product (GDP), much higher than in the US or Europe, where it is 8-9%, according to McKinsey research. That matters; High logistics costs hurt Indian competitiveness. Lack of supporting infrastructure, automated material handling systems, and high manual process interference are some key areas where the Indian air cargo industry lags its global peers. 

Currently only 10% of India’s logistic market is Organized and with growing digitization, Organized sector is going to grow further. Growth of the Organized sector should improve overall efficiency and bring down the cost. 

Realizing the importance of the sector and to address the inefficiencies, the government has included the sector in the Harmonized Master List of Infrastructure Sub Sectors. Grant of infrastructure status to logistics, the introduction of the E-Way Bill, and GST implementation are set to streamline the logistics sector in India. Setting up of a logistics division under the Department of Commerce, technology upgrades, and development of dedicated freight corridors and logistics parks are also major moves to upgrade the logistics landscape.

Summary: Efficiency led growth and share of organized players will increase.

Parent company

Key highlights of parent company

  • DHL Global market share 39%
  • DHL is more competitive for international shipping
  • Total Revenue 63B EURO
  • Profit 2 BN EURO
  • Company is the largest player in Germany and one of the major players in Europe. They also specialize in Medical and High tech appliances delivery. 
  • Parent is known for cheap delivery across borders and has a good network across the globe.
  • Parent still hold 75% of equity which leaves little float

Bluedart might benefit from its parent international network and knowhow in technical appliance delivery. Right now international shipping is negligible hence need to keep an eye on this factor.

Recent significant announcements 

Balfour Manuel, was appointed on Jan 24 2019. His appointment does not seem to arrest the fall in stock prices..Stock price trend reversal started only after covid 19.

  • Blue Dart is increasing shipment price by 10% from current level starting Jan 2021.
  • Blue Dart strengthens its specialized Temperature Controlled Logistics (TCL) solution in the nations fight against Covid-19
  • Blue dart coverage is 98% PIN code is India
  • The Company has been focusing on cost measures to improve efficiency and productivity without compromising on service quality. These initiatives including right sizing/restructuring, aircraft loading, vehicle utilization etc. helped in reducing the costs to some extent. 
  • Finance team implemented a completely new billing system during the year. The new billing system on upgraded IT platforms and with certain core changes has enabled the Company to consolidate and digitize billing related processes.
  • Blue dart’s break even revenue for net profit to be positive 250 Cr. Marginal profit increases as revenue crosses 250 Cr.
  • Since 2016 company top line growth is stagnant, which is similar to economy growth
  • In 2020 company fixed assets have gone up by 100% which means the company has done capability addition. This capacity addition should add to the top line in the next few years.
  • The Management further decided to discontinue certain business activities

Company is trying to improve efficiency and scale up the business. Price increase shows its confidence in its value add to customers. It might benefit from the CODID-19 vaccination drive.

Current trend in revenue

The company posted ₹41.39 crores profit after tax (previous year ₹13.99 crores) for the quarter ended September 30, 2020. It reported profit after three consecutive quarters of losses from Dec-19 to June-20.  Revenue from operations for the quarter ended September 30, 2020 stood at ₹864.42 crores compared to ₹414.19 crores in June 2020 and ₹800.07 crores in Sep 2019.

Last quarter has broken the ice and the company seems to be on the growth path for the first time in many years. If this trend continues Bluedart will be on a good path for next few years and that should reflect in stock performance too.

Competitors

Blue Dart faces competition from major logistics companies such Allcargo Logistics, Gati, Delhivery. Most of these companies provide similar services and operate in the same business lines as Blue Dart. However, Blue Dart being leader in this area is considered to be a more trusted brand in the industry. It’s able to create strategic partnerships with niche clients and command a premium for its superior services compared to its peers. Recently Bluedart acquired the rights to ship Apple phones which also reflect in company brand.

Management

Balfour Manuel was appointed as the Managing Director of Blue Dart on May 16, 2019. Balfour Manuel is a Blue Dart veteran of over 35 years. Prior to his appointment as Managing Director was Chief Executive Officer of the Company w.e.f January 23, 2019. During his tenure as an MD Blue Dart has taken several key decisions to improve the business.

Blue Dart is increasing shipment price by 9.6% from current level starting Jan 2021. The General Price Increase will account for the cost incurred in investment in the infrastructure and technology to provide its customers with the BEST experience.

Blue Dart has successfully tailored its existing Temperature Controlled Logistics solution to transport critical shipments such as vaccines, medical samples and more. Blue Dart will offer complete Supply Chain Solution for the Life Sciences and Clinical Trials Sector and reefer vehicles (cold chain) services to the vaccine sector to ensure seamless transport of shipments.

Blue Dart expanded its reach to Tier 2 and Tier 3 cities and covered 19,000+ PIN Codes in 2018 and 2019. As part of the expansion, Blue Dart has opened over 939+ new facilities (called NBDO – New Blue Dart Offices) to cater to the large consumer base in rural and remote locations.

Apple has partnered with Blue Dart for delivery of its premium products to its customers within 24-72 hours.

Management ‘s focus is on growing the existing business lines and increasing the reach to tier 2 and tier 3 cities in India. It entered into strategic partnerships with premium clients in the healthcare and consumer electronics space which require superior service. It’s able to command a premium for its services due to better infrastructure and technology solutions.

Summary: Bluedart is trying to increase the coverage and focus on high value added business. This strategy if successful, should improve the margins.

— Pravesh Jain and Saket Jain