Blue Dart Express Limited (526612) Earnings Call Transcript & Summary

So good afternoon, everyone, and welcome to the interaction with the management of Blue Dart Express. Firstly, I would like to thank the management team of Blue Dart for giving us the opportunity to host this call. So today, we have with us Mr. V.N. Iyer, Group CFO; Mrs. Sudha Pai, CFO; Mr. Tushar Gunderia, Head of Legal and Compliance and Company Secretary. So I would now request the management team to provide some opening remarks on the Q3 performance, and then we can start with the Q&A session. Thank you, and over to you.

Yes. Good afternoon. I would request Sudha Pai, CFO; and Group CFO, Mr. V.N. Iyer, to brief the investors about our recent quarterly results.

Good afternoon, everyone -- rather good evening, everyone regarding our Q3 results as is being published even on the website, we have done better in terms of revenue on a quarter-on- basis, which is Q2 versus Q3. And that's by 4% and even in terms of profit before taxes compared to the previous quarter of -- sorry, I'm talking about the previous quarter of 2022, we are 4% up in terms of the total income and in terms of profit before taxes, slightly lower compared to the previous quarter by 10%, but because we had extraordinary income in the previous quarter. But overall, on Q2 basis -- Q2 versus Q3, I would say that our shipments have grown by 6.3% and overall, the volumes have increased versus the previous of quarter by 4.6%, both put together in B2B and B2C. V.N. would you like to add anything more?

No, then we will take the questions. Any questions we can take the further part.

[Operator Instructions] So first question we'll take from the question queue. The first question is from Unique PMS.

This is Nirali here. Sir, if you can just briefly talk about the utilization levels after the 2 new aircrafts have been onboarded. Overall, how do we see them? Is it as per our plan? Or just briefly, if you can talk about that?

I mentioned our volume compared to the December quarter last year versus this year, we have grown in the air business overall between 2% to 5%. And this is with the -- this is being in the very first year where the aircraft has been deployed. We are more or less in plan -- as per the plan as far as utilization of this aircraft is concerned. V.N. would you like to add...

Yes. Further to what Sudha mentioned, as we had in the earlier coming quarters also coming build the loads before the aircraft comes in so that when the aircraft comes in, at least some portion of the capacity is straight away by the ones which are going commercial and gets into this. And then we build up the -- use it for the low premium and replace it by the higher premium over time. That's been the strategy, and we continue with that.

And in our experience, by when should we reach this optimum utilization of replacing the cargo also with a higher premium cargo?

See it depends upon even the market dynamics. So a, is that true our intention is to ensure maximum optimization of the aircraft plus the profitable growth. That's always the business aims to, but you also have to take into consideration what's the situation outside like what's the market outlook as of. So depending upon how the market develops, we would -- we continuously aim to ensure that we have a good strategy to have a profitable growth on a month-on-month basis, that's always a part of our mechanisms. V.N?

Yes.

Yes.

While you are on that, if you can talk about the market outlook, what kind of competition you are seeing? Because in the last call, we were of the view that Q3 being the festive season should show some good growth. I'm sure you meant something more than 2% or 4%. So what really changed? And why couldn't we deliver a higher growth in this quarter but -- it's being a festive season?

It -- versus the previous quarter, which is between September to -- Q2 versus Q3, I think we have delivered at least 5% plus in terms of our volume. And that's basically because it was a festive season. As you rightly said, it was a festive season and we could cash in on the festive occasion.

Also one needs to keep in mind this time Diwali happened to be in October. So the shipping started in September itself. So the volumes actually got split into 2 quarters. The previous quarter, that is up to September, we had good loads and then carried forward into the current quarter also.

Our September PBT was INR 952 million. And for the month of -- for the quarter ended December 2023, it's at INR 1,050 million, respectively. So that way, you can see in the income driven by this festive occasion. I hope this answers your query.

Yes. So -- but in that, some other contribution is from other income also, right, which you said was extraordinary, a part of it.

That was compared to the last year's quarter. Last previous years, where if I'm comparing December 2022 versus December 2023, there again, there is an increase in the revenue from operations from INR 13,370 million to INR 13,829 million in December. There is an increase of around 3.43%. And of that in December 2022, there was a one-off, which has not happened in this particular year.

So we take the next question from Mr. Pritesh.

Ma'am, just a couple of questions. One, we are still not clear why we are not growing on volumes now for the last 9 months. Where any other indicator with respect to the economy or logistics or freight or anything that we track hints at a high single digit or double-digit number. And yet for us, forget this quarter, but yet for us, the volume growth set number this year has been fairly low. That's my first question. And I have one more question with respect to margins. We have been continuously taking price hike. We have yet again announced a price hike to be effective January, but when it comes to the net realizations, it's not flowing. And when we look specifically at this quarter where a lot of your direct costs have come down, but we don't still see the expansion in margins. So is it that we have taken around of -- or we have given the -- yes.

So I would like to answer your first question where you said on a 9 monthly basis, our volumes have not grown. I have in front of me April to December 2022 versus April to December 2023. And in terms of shipments growth, it's the 9% growth in terms of the overall shipments. And I feel that 9% is a decent percentage in terms of the overall volume growth for any particular business...

And ma'am tonnes? In tonnes madam, in tonnes?

In terms of tonnages it is 3.1% increase...

Exactly ma'am so that number is fairly smaller number versus any other...

What you have to [Technical Difficulty] in mind was the previous year still had a COVID impact where we did a lot of international charters, which adds to the weight of the previous year. So you -- one has to do a like-to-like comparison by moving that tonnage out. And if you keep that tonnage out, then as Sudha says, we have -- our growth has been fairly in line with what our expectations would have been. Sudha?

And also I have to, must say that it's a lightweight shipments that we are carrying which is where -- helps us also to improve our accountability.

Okay. On the second question on the margin side, the realization side?

So margins, if you look at December '22 quarter versus December '23 quarter, we are from 8.8% to 7.47%. As I mentioned, in December 2022, there was an international charter element. And accordingly, the margins considered without that, it would be in the same range. Or perhaps a lower range from September '23 quarter. From Q2 versus 3, the margins have increased from 7.11% to 7.47%. There is an increase in the margins on a quarter-on-quarter basis. And it also depends upon the product mix aspect, right? How the product has [ held in ] ground and so on...

Which margin are you referring to, ma'am? Are you referring -- to which margin you're referring? I think you're not referring to operating margins, right?

I'm referring to the margin percentages.

At the PBT level.

Yes. PBT level.

Yes, ma'am. But generally, at the operating level, that's how we tend to look at the operations and refer. The question was -- we -- there is a tailwind in cost. We were all expecting some margin expansion to flowing. It is not flowing. So is there something that we have to understand, number one. And number two, from a peak margins of whatever number, 15%, 16%, 17% number, on a stand-alone basis, we are at about 9% or 10% -- 10%, 11% margin number. So where do we see the operating margins of your company that question may also help us to understand or you want to answer the other way, why is it that the costs have come down and margins are not expanding, whichever way you want to answer?

If you remember the last time also, we said that we have inducted the 2 new aircrafts into the system, and there would be a certain time of 2 quarters till the time it gets into an optimum optimization. So that time one has to -- so when you in that capacity, it can't be that you continuously improve the others. The initial -- this would be -- our focus would be that the aircraft gets fully utilized with capacity utilizing being fairly large, though with lower premium products. And as we keep addressing the mix part of it, the margins will come back to the earlier levels, which has been stated this, and I think that would continue to -- in which we can move.

Okay. Lastly, any changes in the supply in the air cargo side, supply in the industry, any major changes that you want to highlight?

See, we are the only cargo airlines. So if you look at the passenger airline, they would be keeping on adding the capacity, but that will never be a compete for us because of it's belly space with 1.5 tonnes, 2 tonnes of being fought between multiple players. So from the cargo -- express cargo side, I don't think anything has changed other than we introducing additional capacity into the market.

So we take the next question from Mr. Pulkit.

Okay. Great. Sir, I think I'll come back to pretty much the same question the previous 2 participants asked because it seems you have added capacity. And despite that, your revenue has not grown. And it seems that the management thinks that this is a decent growth. So just trying to understand that what was the rationale of adding capacity when this growth of low single digit is something that as a company, we think is a decent performance? That would be my question number one.

For any business, there are certain months or certain years where you have to take a risk. And that's the call this was taken where we inducted 2 aircraft. And once you take and inducted 2 new aircraft, it's not just 1, like it's 2 new aircraft, then the gestation period to ensure that it's optimum, it gives the right amount of revenue and profits and so on. If you look at it, there is a volume growth. However, may not be reflecting so much in terms of margin, but there is an intention to build the capacity, to utilize the capacity. And then eventually, as V.N. also mentioned, then look at how to make it at a profitable growth. So this -- when this entire mega change happens, it will take some time. And I think by -- from a quarter-on-quarter result, it's been a very fair progress is the view. V.N., would you like to?

Yes. Also, when you -- the problem is a comparison of the previous year versus this year. The previous year had a lot of charters, international charters because of COVID. So the revenue base is higher. That is why you are not seeing the -- or you are seeing a muted growth or a growth which is lower. So COVID was an abnormal time, and you can't equalize that and say that. But under normal market scenario, we are -- our study from a third party also indicates that our market share is increasing on all the products. So that way, being assured and rest assured that our volumes are growing, the revenue is growing. We are on track.

Sure, sir. Sir, and on that journey, which you said that 2 planes have been inducted and it will take time for the ramp-up and premiumize that, where are we on that journey in terms of when will it start reflecting into better margins for us as a company?

The definition of a better margin in your mind and my mind could be different. But what we would say is that whatever we were in a normalized scenario before COVID, whatever margin levels were there, that being a normal margin. We should be at a similar level, maybe give a quarter, 2 quarter here or there. Sudha?

No, absolutely. [Technical Difficulty] One thing at a time, we are trying to focus. One is to avoid idle capacity. Second is to ensure to have a very profitable growth and trying to just balance this act.

Sure. And maybe one last question. I mean, we've been seeing a lot of uptake in terms of electronic manufacturing in India. Companies like Apple are talking about big numbers when it comes to export and already shown in the last 2 years. Can you just talk about how you are looking at all this manufacturing optimism that's going around in the country? Are you seeing that in terms of volumes or maybe at this stage in terms of inquiry? So that we get a sense of how the next few years could look for us as a company?

So for Blue Dart per se, it's the domestic demand. It's the domestic demand that matters a lot. It's the domestic movement, intracity, interstate are the one which are the real trigger like. But as you rightly said, with the increasing trust in the exports and increasing trust in the trade, we expect that the overall domestic demand in the B2B segment as well as in the B2C segment would continue to remain at an all-time high. There is a high level of optimism. And we too aspire for better numbers on a quarter-on-quarter, although Tushar has told us that there should not be any forward-looking statement.

No. I mean, we are not asking for forward-looking numbers, but at least since you are in the hot seat to give a sense of how you're seeing demand sort of build up for the future, that would be very helpful for us as analysts to understand.

Obviously, with so many things, as you mentioned, the government is taking all those initiatives. From the organization, also from that perspective, we are focusing on Tier 2, Tier 3 cities where in tiers, there would be a lot of movements happening. So we are focusing on that. We are focusing on certain specific sectors which could be a boom. We are focusing on channels for us to ensure that if the volumes would take a little time to grow, we don't input in infrastructure and start eating up the cost. But on a variable model, we try and start servicing. And as the volumes go up, we start putting in our own infrastructure. So those plans are all there, and we would play into the government, into the way in which the government's policies would -- and the manufacturing and other industries would progress, we are certainly playing into it and seeing how we can benefit from that.

Sir, we'll take the next question from Mr. [ Chirag Setalvad ].

A few questions from my side. The first is, what is the current utilization on the new aircraft added?

Like we said, we don't publish as such, the utilization percentage. However, we had a festive quarter in Q3. And that's where we optimized on our -- the investment that we had done into these 2 airplanes, right.

So ma'am, let me ask the question a little bit differently. How long will it take for you to get to the optimal level of utilization even at an adverse mix? So of course, you will improve the mix going forward. But just to get to the utilization -- mix will keep improving. But just to get to that utilization which you think is appropriate, how many quarters do you -- how far away are you from that?

Yes. If you take the revenue or the yield mix aside and you're only looking at the pure utilization of the aircraft, what happens is in bulk of the sectors where the movements are fairly good, we would be at a closer to optimum utilization, which could be 80%, 85% kind of a thing. But when it comes to the last sectors where there could be a one-way movement into a consumption center, but not the reverse because it's not a production center, those places, we'll always get challenge of -- in those sectors, the utilization may be a little -- which we call as weak sectors. Now it not -- it's a weak sector for us as well as any other player who would operate into that sector. So if you leave those aside, otherwise, we are -- on capacity utilization, we are fairly good right from the initial stage itself.

Sure. The second question I have is, you spoke about getting back in a couple of quarters to normal levels of profitability, which you exhibited pre-COVID. And of course, we've seen some variability even pre-COVID. So I wanted to get this right in terms of what is, as you see it, the normal level of profitability?

See, you could take a 3-year kind of an average of pre-COVID and say that would be a benchmark level.

Yes. Iyer sir, please go ahead.

Currently, you're at 50%, FY '19...

Sorry, possibly, you were not able to hear me. I am saying that if you look at pre-COVID, keep the COVID aside on an average of 3 to 5 years, you take an average, and that could be -- it will even out the ups and downs, and that would be the level which would be a normalized level.

So we take next question from Mr. [ Arij Biyani ].

Yes. I just had a follow-up to Chirag's question on the margin part. So you alluded that you want to do a 3- or 5-year average of last 5 years of pre-COVID numbers, but that is all over the place and it looked fairly low in the context that you have set up -- you said taken additional capacities in place, right? There's always a variable between OpEx and CapEx. So done some CapEx and you are underutilized today, you'll have better utilization, you'll have better mix coming in place. So I'm like, we can't fathom what's going on here. So I would love -- appreciate if you can kind of call out -- again, we're not looking at 2 quarters, 3 quarters. But is there an aspiration that the management has to achieve a certain level of margin, certain level of growth? We're all kind of struggling to get this answer. So I would appreciate that when you -- internally within the Board or within the Management Committee, what is the kind of growth that you're looking at? What's the kind of margin that you're talking about? Maybe a range and not necessarily a particular number. It's all over the conversation that just happened over the last half an hour, I couldn't understand where we are heading to.

See, this is the same question which gets asked in the quarter-over-quarter. And I think in the past quarters also, we have mentioned that when you're looking at an operating margin, it would be at -- certainly a double-digit -- a little lower double-digit kind of a margin is what we would be -- which we would call as a normalized margin. That's been -- and that's what we will be aspiring. And if things work out better, great for us.

So lower double digit in the context that where you are today, what we should assume is that this will even come down further from here on?

Means -- sorry?

The reported margins in this particular quarter and the aspiration of a lower double digit, lower double digit means 11%, 12%, right?

See, we wouldn't want to...

I'm like struggling, Mr. Iyer to understand...

That's why we are not -- whether you call a 20% high or a 14% low...

No, we look at the benchmark, today's benchmark and the pre-COVID benchmark, as you pointed out. And we are trying to understand versus the pre-COVID benchmark, which you pointed, where are we heading now? Are we moving upwards or we are moving downwards, or it's static?

Certainly, we can't move downwards. We would always want to move upwards, and that's the direction we are moving.

And to reach an upward number, what is the growth that we should achieve to reach an upward number from here on? Is that going to be a 10% plus or a 15% plus to reach a number? Obviously, there will be a mix impact. There will be some other impacts. But what is the number that at least we are targeting? And there'll always be every year, there will be some one-offs like last year, you called out for certain one-offs. There will always be certain one-offs in a particular year, right? So it's -- frankly, I'm like trying to grapple with where are we heading both in terms of growth and margin.

So it also -- the increase would also -- we aim to have it from our GPIs by having more volumes. And as V.N. mentioned, it's by turning around toward the most profitable growth. So that's a continuous discussion that we are having at this point in time. And certainly, it should be -- it should get better on better from quarter-to-quarter.

Yes. [ Arij ], one more point. When you are talking of year-over-year, you will have abnormalities. Certainly, there would be, but those are normalized years. We are looking -- we are comparing a COVID year with a normalized year. And that is why that abnormalities takes a impact. Otherwise, in a normalized year, it will not be mentioned as an abnormality, it's just business as usual.

Sir, we'll take the next question from Mr. [indiscernible].

We've been attending this call for quite some time, and thanks for having these calls every quarter. Sir, just 2, 3 questions. One is like -- I think even in the previous interactions, there have always been confusion when we talk about margins. See, when you talk about pre-COVID margins, I think there is one big difference which has changed, which is if we look at pre-COVID EBITDA margin, which I'm not sure whether you're referring to pre-COVID EBIT margin or pre-COVID EBITDA margin, that is one. And secondly, if it's an EBITDA margin, there has a big Ind AS impact there then and versus when we compare it now. So how do we remove that anomaly? Because we don't know how -- what would have been the normalized margins of current numbers. So -- and I think that is what is creating confusion among many analysts over the last 2 quarters. That is one. And second, because of the fall in -- see, I think when you say you are having a volume growth, at the same time, there is also an impact of realization because of the oil price just fallen down, which you would have passed on. So how much of this is impacting your operating deleverage? If you can just throw some light on these two parts.

I'll possibly attempt to remove the confusion which is there. See, it all depends on whether you're looking at the operating or the PBT margin. When you're looking at the operating at the PBT level, yes, certainly, the accounting standard change had has an impact on the year-over-year comparison because some of them were before the accounting standard changed. So you have an impact of that depreciation and all that coming in, okay, lease versus depreciation and all that. But that's the reality. We can't -- in the published numbers, that is there. But as an organization, when we are looking at it, we are looking at a like-to-like comparison. We are saying -- we are not saying the benefit should -- because of the accounting standard change happening is this, benefiting the figures, it is more mathematical than business driven. So we are looking at how in a like-to-like scenario, how margins can keep improving by utilizing our assets better and better. That's one. Second is when you're talking about the realization, the published results have a mix of all the products put together. And when ground is growing faster than air because of the infrastructure movements and others, the overall yield would go down. It doesn't mean that it impacts profitability because for servicing the ground, the cost of servicing also goes is lower, okay? So there is very little relationship between the revenue increase and the profitability because it depends on what product increases -- which of the segment is increasing. And is that corresponding cost moving in a direction which is those efficiencies coming in. In the earlier interaction also, we have been saying that the company will not go for volumes at the cost of profitability. That is, being in the volume game, trying to get market share from the competition. We are always looking at profitable growth. Keeping that in mind, it will always -- whether the top line shows a negative growth because the product mix has changed and in each of the segments is growing, growing but the overall is growing lesser because ground was growing higher does not mean that it impacts the profitability because the cost of servicing will also be proportionately lower. Hope that clarifies.

It does, sir. It does, sir. So still, I'm just a bit confused when you say about operating margins, you see that -- I understand sir, when you look at -- you have the live numbers and you have the numbers, adjusted numbers, and that's why when you see that you can see those as growing. But when we are looking -- we go by the reported numbers, sir. So for us, what is the right comparison metric? When you say we should look at 3-year average of pre-COVID, we should look at PBT margins or we should look at operating EBIT margins? That's the precise question, sir.

See, as an analyst, what you look at and what makes sense is entirely driven by how you are seeing it. But for -- as a business, for us, PBT becomes important because that is whether it is a leased option or asset addition translating into depreciation, all that gets equalized at the PBT level.

Fair enough, sir. So does that mean, sir, when you say that low double-digit margins, you are referring to PBT margin? Is this a fair assumption?

We refer to operating margin because every time when we were looking at PBT, the analysts were coming that we are looking at operating margin. So that is why we are saying at the operating margin level.

So your EBITDA margins or EBIT margin -- so when you're saying [ 12 ] lower double digit, is it EBIT or EBITDA or PBT?

EBITDA.

Sir, we'll take our next question from Mr. Mukesh.

My first question is on the 2 new aircrafts. Could you give a sense if we have already broken even on the 2 new aircraft there? Or is there some more time left for breakeven there?

As we said -- he is asking if we have done a breakeven on the aircraft. And as we said in our earlier this thing that we have started the optimum utilization of the aircraft because of the festive quarter that we had in Q3. And hope that momentum in terms of volume continues to remain so that we can break even in our investment.

So on the daily operations as such, we are breaking even given that our utilization rates are [indiscernible] what you say for these 2...

Sorry...