Delhivery cedes more ground, hits new low despite Q2 loss shrinking

Several brokerages bullish on the stock with target prices ranging between Rs 330 and Rs 700

The share price of Delhivery has seen deep reactions since the stock listed in June at a price of Rs 535. The IPO was priced at Rs 487 and the stock hit a high of Rs 708 in June. It hit its all-time low of Rs 329.90 on Monday (Nov 21) before recovering to the Rs 344 level on the NSE.

There have been concerns about sustainability of revenue growth and low visibility of profits since the April-June quarter (Q1) results were declared and those concerns have not disappeared with the July-September quarter (Q2) results. The revenue concerns are centred around the slowing of growth rates in the express parcel segment (which is driven by e-commerce) and decline in volumes in the PTL (Partial truck load) segment after the acquisition of ‘Spoton’ in 2021-22 for what’s believed to have been an all-cash deal of about $300 million.

The company showed negative adjusted EBITDA in the first half of 2022-23 after declaring two quarters of positive EBITDA in the Second half of 2021-22. Net sales in Q2, 2022-23 was at Rs 1,796 crore, which was 20 per cent growth year-on-year (YoY) over Rs 1,498 crore and 2.9 per cent growth quarter-on-quarter (QoQ) over Rs 1,746 crore. The Q2 EBITDA was a negative Rs 138 crore, which was better than negative Rs 254 crore in Q1, 2022-23. Adjusted for extraordinary items, EBITDA was negative Rs 125 crore versus negative Rs 217 crore (Q1). The company posted a net loss of Rs 262 crore, versus a net loss of Rs 635 crore YoY and a net loss of Rs 405 crore QoQ.

The margin of losses did decline substantially at both operating level and after tax. Staff costs declined as did operating leverage. Unit realisation of B2C was down 2 per cent but volume growth was 19 per cent while PTL volumes (which come from the Spoton acquisition and are mainly B2B) seem to be recovering. The Q1 saw 48 per cent QoQ decline in PTL volumes due to difficulties in integration. But Q2 saw a recovery of 20 per cent QoQ in PTL volumes over Q1. A focus on cost-control and profitability will be key to regaining profitability.

The company expects to be at breakeven by 2024-25 with a target revenue CAGR of 25 per cent between 2021-22 and 2025-26. This growth would be reasonable if the base assumptions of higher e-commerce penetration and overall retail growth are sustained. It’s assumed that India will see 10 per cent e-commerce share of a $1 trillion retail segment by 2024-25.

The company does have a reasonable balance sheet since the IPO was highly successful and it can afford to burn cash for some time. It has a few competitive advantages, such as lowest cost structure compared to peers in the express parcel business. It has a fairly trusted brand and good reputation on the technology front. It could gain in a scenario of ONDC rollout where it may get more market share if the model of open marketplaces and open courier takes off.

While some analysts are conservative, several brokerages have Buy calls on the stock at current levels. Target prices range from Rs 330 (all-time low) to Rs 460, Rs 685 and Rs 700. If these valuations are accurate, there’s a considerable upside.