Market share, margin gain hopes could drive further gains in Delhivery

The key takeaway in the quarter was the 19 per cent y-o-y growth in express parcel volumes and a 14 per cent rise in revenues of the segment

The stock of logistics major Delhivery gained over 6 per cent since its results before correcting over the last couple of trading sessions.

The company delivered better than expected operational performance in the quarter and there are expectations that it could turn profitable at the net level by the end of FY24. 

The key takeaway in the quarter was the 19 per cent year-on-year (Y-o-Y) growth in express parcel volumes and a 14 per cent rise in revenues of the segment.

On a sequential basis, volumes were up 1 per cent even as the June quarter is considered a seasonally weaker quarter than Q4.

The strong volume growth has led to a 1-2 per cent market share increase for the company with the market share gains in the direct-to-consumer segment. 

“Delhivery’s shipment growth in express parcels is much higher than the growth reported by some of its closest peers. It also means clear market share gains, even if it is for this quarter for now,” said Alok P Deshpande and Aadil Khan of Nuvama Research.

Improving the network also helped the company post a strong showing in the partial truck load or PTL business.

Revenues in this business-to-business segment improved 34 per cent Y-o-Y and 6 per cent sequentially while the freight tonnage grew by an impressive 44.5 per cent.

The sharp 44 per cent growth in Express PTL also puts to rest concerns on Delhivery’s positioning in the segment, say analysts at Kotak Institutional Equities. 

After breaking even in the March quarter, the company reported a small loss at the operating profit level in the June quarter.

This was on account of upfront investments, annual wage increases and other one-off costs. The company highlighted that it makes 60-70 per cent of investments in Q1.

With fixed costs expected to remain flattish, operating leverage should remain strong in the remaining quarters of FY24.

JM Financial Research expects margins to be 6 per cent plus in Q4FY24. 

The brokerage has a hold rating on the stock and believes that there isn’t any conviction behind the recent uptick in stock price and has pegged a target price of Rs 390. This is 5 per cent lower than the current price at Rs 411.10.

Nuvama Research too believes margin recovery is evident in the medium term and should support the stock.

However, over the long term, they believe that continued profitability will have to be accompanied by 18-20 per cent growth in express parcel business for several years if the pre-IPO enthusiasm is to return.

The brokerage has a hold rating with a target price of Rs 411. 

Most brokerages have a hold or reduce rating as they are awaiting consistency on the profit trajectory and do not find any comfort on the valuation front.