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

Sure. So the question that I basically had was, does our CapEx of INR 250 crores, CapEx guidance of about INR 250-odd crores for FY '25 remain intact?

Yes, it does include the expansion of the hub.

Okay. And these hubs would be on the surface business, right? Majority of the CapEx would be on surface now.

Both. We have both the blends.

Considering the competition in Surface Express is very strong currently. What I was trying to understand was Blue Dart being a premium logistics operator pricing or pricing on surface would also be slightly higher than competitors. In wake of this, how are we trying to win market share? How are we trying to gain volumes in the surface express business.

So see, our outlook is always is to increase the market share, definitely, to gain the market share. However, we also aim at profitable growth. we also aim for the profitable growth. And yes, in the markets where we are dominant and we are leading, the profitability would be -- the margins would be higher, but in the market that we are entering. We always aim for a decent profit. And yes, of course, depending on the outlook for the quarter and how does the overall business pans out? We do have some risk taking risk-taking situations. But largely, even with the -- we face a strong competition on the ground and we try to aim for the profitable growth in the business we conduct.

Got it, ma'am. What from what I can infer -- so tactically, in areas where we are not dominant in regions where we are not dominant, our pricing strategy would be to sort of match a dominant competitor wherever we are challenges? Do we have that leeway? Or do we play the premium pricing model throughout despite us being challenges or being dominant in a particular region?

So it also depends on the customer base as well. If we see like a customer with a steady volumes and our possibility to do a consolidation going forward, may get improved. Considering those all factors, the pricing is accordingly offered and which may not fit into our exactly profitable growth agenda, however, depending on the markets that we are catering to, depending upon the customer base, we do consider a leeway in pricing. Sagar, would you want to add anything?

So the term of premium pricing can be at times subjective if you look at it from a different parameter. It depends on what rate breaks the different players in the market are operating. So if a player who is at a 50kg per shipment versus somebody who is at 120kg, 130kg, as per shipment, the 50 gig shipment becomes more of a service proposition than a trade proposition. And the RPK doesn't create become comparable. So as we try to also benchmark at times ourselves in the market, we don't only look at the RPK. So if you look at RPK, one may say for that would like at a premium level, but that is -- that may not be the correct criteria. From a business strategy point of view, we don't really get into acquiring customer base based on pricing as a solo criteria. So service quality is always the prime criteria. Of course, wherever there are opportunities where there is key customer and a long-term proposition. We may have a kind of special price or a lease price for initial few months. And after the customer realizes the value being delivered, then the next price increase cycle we ask for the real benchmark price that in line with other customers. So that has been so -- and this happens more on a modest scale will not make a very big difference in the yields or in the margins that we would typically draw from overall business or product perspective.

Got it. Very useful, Sagar. Just last question. So considering the volume numbers that you have given out our blended realizations are down about by 4% on a Q-on-Q basis. While I understand you don't give the bifurcation between surface and air. So what I can understand our surface business might have outgrown our air business by roughly considering that it contributes only about 30%, 35% to our top line. In that scenario, our air volumes would have not grown by much. So is the in-sourcing of cargo that we did in 4Q, right, where we did not take up belly cargo space, commercial belly cargo space. That would have resumed in this quarter or the in-sourcing continues to remain at the same level as it was in 4Q.

So 2 questions. I think one from the surface ground point of view. Yes, that has been the major, I would say, growth drivers. So as we go along, you may see as if overall blended yield in terms of per kilo more dilution, not really comparable number as such. From the point of Belly cargo, yes, as we have run our new aircraft for the entire quarter, the focus is always on ensuring for the Blue Dart blue dot sectors where our flight flies to minimize the commercial in all and depend more on the in-sourced capacity. So that will have some impact in the initial phase as we build the volumes in the new sectors there.

And also what happened -- you're right, the EBITDA cost, the commercial airline cost ideally should be controlled -- but considering the SQ, where this is the most biggest agenda of mission of this organization is to adhere to the SQ level, right? So to meet the SQ level, sometimes Well, we do take a call on incurring the cost on commercial space just so that you get to give an overview on the EBIT cost in tech.

The next question is from Krupashankar NJ from Avendus Spark.

My first question is on pricing again. Sorry to harp on this point, but just wanted to understand individually, between Air Express and Surface Express. Any of these segments, has there been a price decline sequentially because of various reasons, market reasons or weaker quarter I understand that mix has played a role with respect to yield decline. But individually, has there been any decline on a Q-o-Q basis?

We do not comment on individual products sector, et cetera. Shankar. Overall, at an RPS RPK level versus the previous versus the previous quarter like versus the previous quarter -- previous year quarter, we are seeing a marginal growth on the RPS part. And RPK slightly down. However, weight per shipment has increased by 2.1%, whereas RPK is 0.7% down. We give an outlook overall at an organization.

Understood. Understood. So is it fair to assume because you have recurred costs on expanding your hubs on the ground network as well as the RX network. To boost utilization similar to what was done with respect to the Guwahati sector, wherein you had taken in low-yield products just to boost the utilization levels. Is that something of a strategy which can be deployed in the Surface Express business as well just to ensure that utilization levels improve so that you can cover up the cost. That's something which we are actively considering? Or is there something which we have implemented per se?

Sir, you are saying on the Surface Express business, do we do a better utilization there? Do we do a proper...

Yes. Is there a yield management perhaps just to boost the utilization of expanded hubs, which have come through over the last 1 year or so.

From ground product or service product point of view, the major cost element is the vehicle higher and not as much hub. So ideally, you would not -- and this is already well set network. The capacities are almost close to the optimum utilization levels from the volume point of view. So we would not really prefer as a business to dilute or offer a lower price in order to utilize the hub capacity from a real estate point of view. So no, to answer to your question is no, there would not be a dilution in the yield because of the expansion of hubs.

Understood. Understood. And last point from my side, last question was more to do with the e-commerce business. Is there any further accretion with respect to pricing strategy over there, perhaps because increasingly, we have seen that the Blue Dart are hearing from a market that the shipments of Blue Dart share in e-commerce has also increased. So any change in strategy with respect to e-commerce?

No change in strategy. We do offer both our aircraft for a faster delivery as well as like most of the competition does, we also move on ground on this speed network so as to give on ground, but a fast kind of network -- we have started that with major focus since last few years, 2, 3 years, especially, it has picked up more after COVID, and we see that also growing well. So it has been a continuous continuation of the more that we had. So no major change in strategy over there.

So just perhaps a follow-up on that. Is it fair to assume that during this quarter, e-commerce or B2C in ground would have grown much faster than B2B ground surface? Or is that -- is that something which you can comment?

We don't give product-wise within the product price.

Just directionally, directionally just asking that.

B2C is a smaller segment on the ground part for us.

Yes. Yes. So on B2C, the ground -- so we have that speed network, which we call DAs. So that has been growing faster, but it is still a smaller part of the business. But yes, that is growing not a very big growth driver, but that is something that probably is the product that will continue to grow faster for a few years to come.

The next question from Vipul Kumar Anupchand Shah from Sumangal Investments.

Yes. My question has been answered. Thank you.

[Operator Instructions] The next question is from Nimish Shah from Emkay Investment Managers Limited.

So I just had one question. If I compare the June quarter versus the March quarter. So the paid per shipment for us in the quarter has gone substantially versus the March quarter. So is this -- is it fair to assume that we would have seen expanding our document business sequentially? If you could give some sense directionally?

Weight per shipment, sorry, we didn't get the initial range trend.

So when I just compare the rate per shipment for June quarter and March quarter, so in the June quarter, it has gone up by about -- so I'm just trying to infer that. Is this because of our documents business going down sequentially?

Not going down, but the share can be the ground product being a faster-growing product, the share would go down against it will have impact on the rate per ship.

And just some sense in terms of how is the competition in the documents business.

Optimize is largely our air business and -- so it's known to be a market which is known to be one of the largest market share business for Blue Dart. That's all we can say on the DP business and that holds could even for this quarter.

The next question is from Ankita Shah from Elara Securities.

You mentioned that we are doing a lot of investments on creating new hubs. So what is the CapEx that is done last year? And what is the number of addition of hubs that you've done?

So last year, we didn't have any big investment into this -- and this year, I mean, these are the very largely high CapEx-intensive and additionally would be another 2% to 3% or 3% to 4%, depending upon the profitability, how we may cover profit and we know what would be the strategy for the next year. Considering that approximately another is what is our current horizon. I hope that answers your question.

This means to say that last entire year, we've not added any hubs.

Last quarter...

No. No, I'm talking about the entire financial year because even your annual report number is exactly the same 2,347 hubs is same as what we had done last year, FY '23 and '24, there is no change. And every quarter press release mentioned that we have been adding new hubs on the surplus side. So where are where is the addition we are not able to capture that?

So if you can look at the EBITDA level where our depreciation has increased depreciation and the increase from last quarter to current quarter. I think that's the 1 which explains the increase in the is the increase in the hubs that we are planning that has gone life.

And last financial year, we have not agreed any major hubs. So last couple of financial years has been more of addition of aircraft and conversion from lease to buy. There have been and the replacements or expansions of the existing smaller facilities. This year and the year following, there will be -- we are not adding you can say, but expanding existing house by replacing or within the same facility adding the piece of land.

Okay. And you mentioned that we have not yet reached the optimum localization level at the aircraft. So what is the level right now? And at what the level when we reach, we will achieve an optimal level according to you?

Idea is 90% -- 90% of the actual rate that aircraft carries, Considering the volumetric adding another ties, it takes it up to between 95%, 98% and so on. But ideal actual rate, if it is somewhere between 85% to 90%, we say that it is an ideal optimized aircraft for us. Currently, it could range between 70% to 75% to other would you...

Yes. So again, I mean, there is a very subject to kind of interpretation of capacity -- when we say utilization, there is underutilization, we only talk about the Guwahati sector. The same 737 that we are currently flying. It also touches Bangalore, Delhi, Bombay and then Guwahati. So other than Guwahati sector, which is also from or ex Guwahati to either Delhi or Kolkata, there is underutilization. However, all the rest of the sectors which are flying within the other metros and time from Kolkata or into Guwahati, they are all full. So when we say utilization of 85%, 90%, it is more of in terms of piles that we sell in. So every time we fly the aircraft, we would not buy the aircraft unless there is a capacity projected or available optimum to fly the aircraft. The only sector where we are flying currently in anticipation of the buildup of volume in the months to come is the ex-Guwahati FFO. In the overall scheme of things is not a very significant capacity that is going underutilized all India capacity basis it could be less than 5%.

Okay. And we had also taken a price this year, which we take every first of the year -- first of the year. Is there any impact? Have we been able to pass through that back to the customer because we don't see any realization gain for in the revenue. Yes. I'm saying we generally take a general price increase in the first day of the year. But we don't see any kind of realization improvement in our numbers. So have we been able to pass on the price hike to the customers or the entire revenue growth is coming only from volumes?

I think we have also made it clear in our press release, we have had our general price increases. Of course, it's was it's not to the expected budgeted level. What we have but roughly between 3.9% to 4% is about is the additional revenue that comes from GPI? So in this 9% revenue growth, you're saying is around 3% is contributed by the GPI. Yes. You can say that 3.9% roughly coming from GPI.

And if you take both for Air and surplus business both or only in particular segment?

No, it depends. Like it depends for certain customers, the contractual terms that we have the period that we have started the contract and so on it expands across all of the product like...

Okay. So it is not across the board. It is selectively passed on.

I mean, yes, it is -- it depends upon various factors like but we try to do across all the products.

Got it. And you mentioned about the price hike that was given to employees which has led to increase in expenses and, hence, lower gross margin. So what is the amount of increment or high are, which has impacted the margin?

Normal merit increase roughly would be -- we'll have to -- it's a play a 4% Y-o-Y quarter-on-quarter increase now. 4% Y-o-Y and Q-o-Q? Q-o-Q, I would say that last quarter versus this particular quarter.

And what would be the Y-o-Y impact?

Y-o-Y sorry -- you would be again y-o-y around roughly 4% -- and even on quarter-on-quarter, considering the similar trend is roughly between 4.5%.

The next question is from individual investor. Rajakumar Vaidyanathan.

Yes. So my question is on the margin levers. I heard that, yes, apart from this better act of utilization, I just wonder, what are the other margin levers available to the company? And how does that -- what do you think will play out in the next 3 quarters?

From a quarter-on-quarter point of view, there is normally a volume upsurge in the festive month. So that is one lever we have during the year. So not every quarter is the same. There is some element of seasonality. And yes, improving the service quality levels and thereby looking for a better price increases or realization while attracting the new customers. So these are typically the levers for the business for a given -- we have a stable product mix, stable customer mix and the network. So the idea is always to improve the quality parameters and thereby try and get more customers and get more premium from the customer in terms of price realization.

Okay. So basically, you're saying only from Q3 onwards, we can see any uplift in margin, right?

Typically, it would be forward-looking. But yes, I mean, the second half is always a good month for the industry or economy in general where we operate in.

Okay. And generally, if you can also give some color on the demand outlook. Do you expect -- do you think the demand is better or you see any kind of slowdown?

We are optimistic. We see as the GDP growth rates improve, the e-commerce, the infrastructure improves, we see healthy prospects both for the air mode for the critical and faster deliveries required as well as relatively less fast, but the ones which go on ground. So we see, in general, our customers growing. So yes, we have a positive outlook.

Okay. Sir, just last one question. So I just want to what is the sensitivity the fuel cost has to the cost line? How sensitive...

So it is an important part of our cost. But by design, it is neutralized by way of having a variable surcharge that we have. So typically, our customers -- our customer contracts have a fuel surcharge clause, which percentage increases or decreases based on the global Brent oil prices. So to that extent, we have neutralized the impact of fuel cost variations in our realization of margins.

Since we have no further questions, ladies and gentlemen, I now hand the conference over to Mr. Tushar Gunderia for closing comments.

Yes. Thank you, Elara. Thank you, Ankita, and thank you all investors. So if you do not have any questions, we can close this investors call.

Thank you. Thank you all. Thank you all.

Thank you. On behalf of Elara Securities Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.