Company Update: Blue Dart Express
Bluedart (BDE) has been reporting very marginal growth in volumes and revenues for the last 2 years. Premium pricing (for reliable service) which has been the forte of the company, has been under pressure due to intense competition, weak business environment and increasing share of B2B segment in the overall revenues. Amidst the above, we expect BDE to report earnings CAGR of 8% over FY16-18E with decrease in operating margins. Though, the expected performance is reasonable in a weak business environment, it's weak from a market leader with the stock trading at extremely stretched valuation. We expect the stock to enjoy premium valuations for its dominant market share, strong asset base, strong BS and parentage of DHL but have a negative bias on the stock due to extremely stretched valuation of 60 x FY18E. We value the company at 55x P/E FY18E and maintain SELL with a TP of Rs 5030.
Company Update: Escorts Ltd
Escorts is expected to witness strong growth in its earnings over FY16-FY18E. Supported by external and internal factors, we expect the company to witness sharp improvement in its EBITDA margins in FY17 and FY18. Pick-up in tractor demand and construction equipment segment will drive revenues for the company. Divestment of loss making auto product business will be margin and earnings accretive for the company. Internal cost saving measures like "Project Shikhar" and planned VRS to lower employee cost will give strong boost to EBITDA margin in the coming years. Further, higher capacity utilization will bring in operating leverage benefits. Backed by above mentioned reasons, we expect 73% earnings CAGR for Escorts, over FY16-FY18E. We revise our earnings upwards to factor in auto sale divestment and higher growth assumptions for tractor volumes and EBITDA margins. We also rerate the stock on account of divestment in loss making auto product division and improved outlook on EBITDA margin expansion. We now value the stock at 16x (earlier 14x) on FY18E earnings. We revise our target price on the stock to Rs410 (earlier Rs282). However, due to significant run-up in stock price, we continue to rate the stock as ACCUMULATE.
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