Blue Dart Express shares close 7% higher as Motilal Oswal upgrades stock to ‘buy’, sees 11% upside

Blue Dart Express shares ended 7.23 per cent higher at Rs 7,231.1 per piece on BSE on Wednesday continuing its gaining streak for the third straight day. The stock rose after the brokerage firm Motilal Oswal Financial Services upgraded the logistics company to a ‘Buy’ rating.

The brokerage earlier recommended a ‘Neutral’ rating on Blue Dart Express stock, which has now been upgraded, along with a target price of Rs 8,040 per share

Given the company’s closing price on Wednesday, Motilal Oswal’s target price implies a potential upside of 11.18 per cent.

The prices of Aviation Turbine Fuel (ATF) did not move in sync with the global Brent crude prices in the financial year 2022-23, which led to a significant under-recovery for Blue Dart Express (BDE), thereby having an impact on the company’s margins, the brokerage said in a note.

Motilal Oswal believes that a significant correction in the prices of ATF recently should boost the margins for Blue Dart Express as the said fuel accounts for approximately 40 per cent of the operating cost of the logistics company.

Further, Blue Dart has made an addition of two new aircraft to its fleet for catering to tier-II and tier-III cities, as the company sees a healthy demand outlook in these regions on a long-term basis.

As a result, the brokerage firm expects a 12 per cent Compound Annual Growth Rate (CAGR) in volume over the financial year 2023 to 2025 and expects Blue Dart’s robust network to help capitalise on the company’s growth opportunity in the Express Logistics space.

Further, the company showcases an improved outlook, and pairing that with a share price of almost 30 per cent lower than the stock’s highs in October 2022, Motilal Oswal believes that the logistics stock is attractively valued.

It expects the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to rise to 13 to 14 per cent from the second half of FY24 from the current level of 10 to 11 per cent.