Rationale
The ratings
reaffirmation continues to factor in the leadership position of BDEL in the
domestic air express segment, its expanding ground express segment, strong
control over operations supported by dedicated ground and air infrastructure
and the state-of-the-art technology backbone ensuring high service standards.
The ratings also factor in the financial support from the Deutsche Post DHL
(DPDHL) Group (ultimate parent - Deutsche Post AG; rated A3 (Stable) by
Moody's) to BDEL, should the need arise. To support the credit profile, DHL
Logistics Private Limited provided short-term lending to BDAL for refinancing
its high-cost debt in FY2021. The rating also considers the strong operational
linkages with international freight carriers, being a part of the DPDHL
network, helping the company optimise its freight distribution operations
globally. The rating also takes into account the company's improved performance
in FY2021 and H1 FY2022 due to higher-than-expected revival of the economy post
the lockdown in Q1 FY2021. Despite the pandemic impacting the business in H1
FY2021, the company reported a revenue growth of 3.6% in FY2021 on a YoY basis.
The company also reported improved operating margins of 21.2% in FY2021 against
15.6% in FY2020 owing to reduction of network cost, yield increase and various
cost efficiency measures undertaken in FY2021. It already reported Rs. 1989.8
crore in H1 FY2022 due to pent up demand and firm freight rates. Despite rising
fuel prices, the operating margins remained healthy at 21.8% in H1 FY2022 with
continuation of cost control measures and its ability to successfully pass on
the high fuel prices to the customers. However, demand remains sensitive to
further waves or new virus variants with the sector's large dependance on
economic activities and remains a key rating monitorable. The long-term rating,
however, continues to be constrained by the capital-intensive nature of the air
express and the susceptibility of profit margins to domestic economic activity,
apart from the intensely competitive landscape. The linkage to economic
activity is reflected by disruption in business profile in H1 FY2021 due to the
pandemic. The company has focussed on growing the highly fragmented ground
express segment over the last few years. Further, technology usage has reduced
the traditional mail requirements across various industries, especially in the
banking, financial services and insurance (BFSI) segment. The technology-led
disruptions will continue to test the business models in the express cargo
industry. BDEL's ability to innovate and meet the evolving customer
requirements will remain crucial over the long -term. The company has a high
operating leverage and hence healthy growth in shipments is critical for
sustenance of its operating profit margins. ICRA's Stable outlook factors in
the company's established position in the market, strong customer base and its
healthy financial profile.
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