Delhivery Ltd. share price target

Delhivery announced the acquisition of Ecom Express – the second largest 3PL B2C operator, for a cash consideration of Rs14bn, valuing the company at 0.6x EV/sales (on FY24 numbers).

Service level EBITDA margin for Delhivery express parcel segment was ~500bps lower than what was realised in Q3FY24, despite a similar top line due to a one-off surge in intracity vehicle rental expenses (cINR 540mn differential).

Delhivery’s Q3FY25 revenue met our expectations, but EBITDA fell short due to increased vehicle rental costs driven by higher truck spot rates during the festive season.

Delhivery’s stock performance has been subdued slowing growth of the 3PL market as the proportion of insourcing at Meesho continues to increase.

Express parcel volumes were below our estimates, but yield improvement of 5.6% YoY aided revenue growth of 6.2% YoY. PTL surprised positively, growing 25.4% YoY in a weak market.

In Q4FY24, Delhivery’s express parcel revenue declined 16% QoQ (+3% YoY), as e-commerce spends softened post a strong festive season

Revenue growth for Delhivery remained subdued as festive season impact was absent in Q2FY24. However, management called out sharp recovery in express parcel volumes from Q3FY24 with a large proportion of heavy packages (bodes well for yield).

In Q1FY24, Delhivery’s adjusted EBITDA loss was INR 250mn (vs profit of INR 60mn in Q4FY23) largely due to annual wage increments, investments in capacity expansion (60-70% of yearly capex in Q1) and disruptions pertaining to security and weather. In spite of Q1 being a seasonally weaker quarter, express parcel revenue grew 2.1% QoQ/ 14.3% YoY, broadly in line with our estimates.

In this note we highlight some of the key takeaways from Delhivery’s Analyst Day event organised at their Tauru warehouse (Gurugram,Haryana) on June 5, 2023. Delhivery team has taken some new initiatives (such as RTO scores) to improve data visibility for customers, which we believe could in turn help in gaining share in express parcel segment or open up newer avenues for monetization.

In Q4FY23, Delhivery reported positive EBITDA margin for the first time since listing. Though the quantum of EBITDA profitability is not significant from a valuation context, the steady improvement over the last 2-3 quarters is a positive development.

Delhivery’s Q3FY23 revenue was lower than our estimates due to delayed recovery in PTL volumes. Management clarified that this was due to network footprint optimisation and subdued volumes in the first few days of Q3FY23 caused by unseasonal rains in Tauru.

We believe Delhivery’s current valuations provide a great opportunity to BUY this high quality stock. The risk-reward skew at current market price is very attractive in our view (5.3:1).

Delhivery reported adjusted EBITDA loss of Rs2.17bn for Q1FY23, departing from the positive trend under the same parameter over the past two quarters.

Delhivery’s B2C-heavy business model has a potential profit pool of Rs 63bn in India in our view (by FY26E). Our base case assumes Delhivery to capture ~25% of the same. We see significant scope of operating leverage with global best practices in distribution, sorting as well as consolidation likely streamlining processes.