IPO Analysis: Delhivery Ltd

IPO Rating: Invest for long-term

About the issue:

Delhivery is a fast-growing logistic solutions provider company primarily engaged with e-commerce players. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 1 per equity share. The maiden offer comprises a fresh offer of shares worth Rs 4,000 crore and an offer for sale by existing shareholders of Rs 1,235 crore, according to its red herring prospectus. The price band of the issue has been fixed at Rs 462 to Rs 487 per equity share. IPO opening date is May 11, 2022, and it will be closing on May 13, 2022. The issue will be listed on the exchange on May 24, 2022, while the IPO market lot size is 30 shares. A retail-individual investor can apply up to a maximum of 13 lots (390 shares or Rs 189,930).      

The objects of the offer are:    

• Funding organic growth.
• Funding inorganic growth through acquisition and strategic initiatives.
• General corporate purposes.

Delhivery IPO Details

About the company:

Delhivery provides a full range of Logistics services, including delivery of express parcel and heavy goods, PTL freight, TL freight, warehousing, supply chain solutions, cross-border Express, freight services, and supply chain software. The company also offers value-added services such as e-commerce return services, payment collection and processing, installation & assembly services, and fraud detection. Delhivery is the largest and fastest-growing fully integrated Logistics services player in India by revenue as of FY21.

The company has proprietary technology systems that enable it to offer integrated Logistics services to a wide variety of customers. Its technology stack consists of over 80 applications for all supply chain processes.

The company has built a nationwide network, servicing 17,045 PIN codes in the six months ended June 30, 2021, or 88.3 per cent of the 19,300 PIN codes in India.

Its 164-network infrastructure includes 124 gateways, 20 automated sort centres, 83 fulfilment centres, 35 collection points, 24 returns processing centres, 249 service centres, 120 intermediate processing centres, and 2,235 direct delivery centres as of June 30, 2021. The company has engineering, data sciences, and a product team of 474 professionals. The company served a diverse base of 21,342 active customers across e-commerce, consumer durables, electronics, lifestyle, FMCG, industrial goods, automotive, healthcare, and retail.

Competitive strengths:

Rapid growth, scale, and synergies across business lines

Proprietary logistics technology systems

Data intelligence capabilities

An integrated portfolio of logistics services

Asset-light business model enabling rapid scale up

An experienced and entrepreneurial team from diverse backgrounds

Company financials:

The topline growth of the company has been impressive. Its business is highly scalable and the company has expanded from a turnover of Rs 1,694 crore in FY19 to Rs 4,911 crore for 9 months ended December 2021. It has made 1.2 billion express parcel shipments since its inception.

Source: Delhivery RHP

The big concern regarding the company is its net losses. It has been suffering net losses for several years now and EBITDA too was negative. However, the EBITDA adjusted for ESOPs has improved over time. While the adjusted EBITDA margin stood at -11.3 in FY19, it has come closer to breakeven at -0.7 per cent as of December 2021.

Recommendation:

Let us first analyze the logistics sector of India. The Indian logistics market is highly fragmented and unorganized compared to other markets. The top 10 organized players account for 1.5 per cent of the logistics market in India, versus 15 per cent in the US and 7- 10 per cent in China. The majority of company’s business is impacted by the health of e-commerce business. Online shoppers are expected to double to 330-350 million by Fiscal 2026 from 160 million in Fiscal 2021. In addition to e-commerce marketplaces, growth in new models such as direct-to-consumer, omni-channel and social commerce are expected to disrupt retail models.

The company operates in four main segments: express parcel services (61.5 per cent of revenues), part truck load (PTL) freight services (18 per cent of revenues), and warehousing & supply chain services (7.3 per cent of revenues). As per RedSeer report, these segments are expected to grow with a CAGR of 28-31 per cent, 21 per cent and 9 per cent respectively till FY26.

The company follows an asset-light model where it does not invest in land & building and vehicle fleet. It invests in critical service elements and IP sensitive areas of the network, while delivering services through a large number of network partners. For example, almost all the trucks for delivery/vehicle fleet are leased with third party logistic players.

The company had been aggressively scaling its business through acquisitions. Recently, it had acquired Spoton, a PTL freight player which led it to become second largest player in PTL freight services segment. It has also expanded internationally by establishing a reciprocal partnership with Aramex and a strategic alliance with FedEx, both global express leaders, for customs clearance, pickup and delivery services.

It is the largest and fastest growing third-party logistics (3PL) express parcel (and heavy parcel) delivery player in India by volume and revenue as of Fiscal 2021 and the nine months period ended December 31, 2021, with a market share of approximately 24 per cent to 25 per cent of the overall e-commerce parcel volumes (including captive players) in India for the three months period ended December 31, 2021. Hence, we recommend to BUY the scrip with a long-term perspective.