E-commerce companies are increasingly recognizing Delhivery’s unique position in the market. With its competitive pricing strategies, Delhivery stands out from its peers. The company’s business model leverages economies of scale, meaning it benefits more as its volume increases. This advantage helps Delhivery maintain its edge and continue to grow efficiently in the logistics industry.
This article provides a concise overview of Delhivery, a major player in India’s e-commerce logistics sector. It examines the company’s business model, market position, and financial performance against the backdrop of a rapidly evolving industry. Additionally, it explores Delhivery’s market position, investor views, and growth prospects within India’s dynamic logistics sector.
Industry Overview
The global logistics industry, valued at $7.98 trillion in 2022, is projected to reach $18.23 trillion by 2030, growing at a 10.7% CAGR. This expansion is primarily driven by the rise of online retail. The Asia-Pacific region leads the global logistics market, driven by innovations like automated material handling, GPS, and biometrics.
The Indian logistics sector is expected to grow to $531 billion by 2026, with an annual growth rate of 6–7%. India improved its ranking to 38th out of 139 countries in the World Bank’s Logistics Performance Index 2023 and aims to be in the top 25 by 2030. Road transportation is the leading mode of transportation in this sector, handling 60% of cargo movement, followed by railways.
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Company Overview Of Delhivery
Delhivery, a logistics and supply chain company, had its IPO in May 2022. The IPO raised around ₹5,235 crore, with shares priced between ₹462 and ₹487 each. Since then, Delhivery has faced several challenges and developments. The stock’s performance has experienced significant volatility.
Delhivery provides comprehensive logistics solutions, encompassing express parcel delivery, warehousing, cross-border logistics, supply chain management, and freight services. The company boasts an extensive network infrastructure, including 85+ fulfilment centres, 29 automated sort centres, 160 hubs, over 7,500 partner centres, and more than 3,500 direct delivery centres, enabling efficient and wide-reaching service coverage.
The role of third-party logistics (3PL) in e-commerce is expected to grow by more than 20%. This growth is driven by expanding product categories, improved return processes, and new customers from smaller cities.
The company’s strong reputation and affordable services are attracting more small and medium-sized enterprises (SMEs) in the direct-to-consumer (D2C) market. Additionally, the top five customers now make up 40% of the company’s revenue, down from 44%. This indicates a more diversified customer base.
Changes In Investor sentiment
Delhivery’s shareholding pattern has seen notable changes over the past year. Foreign Institutional Investors (FIIs) have decreased their stake from 67.63% in March 2023 to 63.63% in March 2024. On the other hand, Domestic Institutional Investors (DIIs) have consistently increased their holdings, rising from 13.03% in March 2023 to 19.62% in March 2024.
A significant event impacting Delhivery’s shareholding was the recent exit of the Canada Pension Plan Investment Board (CPPIB). CPPIB sold its remaining 2.34 crore shares, representing a 3.18% stake, for approximately ₹910.2 crore through multiple block deals. This exit reflects a major institutional investor’s decision to divest, which has negatively influenced market perception and investor confidence.
CPPIB had been an investor for several years, participating in funding rounds before Delhivery’s IPO. The exact reasoning behind this move remains uncertain, but it may align with CPPIB’s strategy to rebalance its portfolio or capitalise on its investment.
Landscape Of E-commerce Companies
One thing to highlight is that Amazon has transmitted a significant portion of its outsourced logistics business to Delhivery. This partnership highlights Amazon’s reliance on Delhivery’s service levels for its logistics needs.
Flipkart recently shared its need to reduce logistics costs to better align with the broader goals of the National Logistics Policy, introduced in 2022. The policy aimed to enhance efficiency and reduce logistics expenses for businesses. Flipkart does a large part of its logistics in-house. The logistics division of Flipkart has recorded the most overall losses among e-commerce logistics companies over the last five years, despite having the largest size in logistics, which is twice that of Delhivery.
Furthermore, Meesho and other e-commerce platforms are directing more traffic to their own logistics arms. They aim to reduce dependence on external logistics vendors and mitigate the risk of price increases or unfavourable terms imposed by third-party logistics providers.
Meesho’s shift from outsourcing to building its own in-house logistics chain has created pricing pressure in the market. This move will significantly impact the revenue of companies like Shadowfax, Ecom Express, and Xpressbees, which heavily rely on Meesho’s business. Peer companies with a large concentration in Meesho and limited presence with Amazon, Flipkart, or PTL businesses will have limited defence against Delhivery’s unrelenting pricing pressure.
The pressure on competitors likely began in FY2022, when Delhivery significantly reduced its prices. This is evidenced by its impressive 63% year-on-year revenue growth, reaching ₹7,241 crore from ₹4,450 crore in FY2021.
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Financial Highlights Of Delhivery
Revenue has grown 12.7% YoY from ₹7,225 to ₹8,142 crore. This is mainly driven by the growth in its third-party logistics (3PL) for e-commerce. This growth is expected to exceed 20% in the future. This is supported by the expansion of product categories, improved return logistics, and new customers from Tier 2 and Tier 3 cities.
Operating profit margin was -6% for FY 2023 when it subsequently went positive and significantly improved YoY to 2%. The primary drivers of this are the growth of their clientele and the extension of the services they offer.
Net Profit Margin Despite improving its Net Profit Margin (NPM) from -14.69% to -13.95% compared to the previous year, the company still has a considerable journey ahead before achieving net profitability. Over the past three years, the company has maintained an average NPM of -13.35%.
Return on assets In 2022, the ROA was -12.3%, which improved to -9.01% in 2023. While this trend is likely to continue in 2024, the corporation still faces substantial challenges in achieving profitability.
Key Metrics Of Delhivery
Key triggers for future price performance
Considering that it is the most effective player in the industry, it can offer clients competitive pricing for its offerings. The management anticipates expanding its market share in D2C, omnichannel, and E-commerce (which is currently between 20 and 25 per cent) as consumers become more focused on cost-cutting strategies and increasing their profitability.
Thanks to the integrated mesh networks employed, transporting freight needs only a minimal number of touchpoints. By employing this automated model the amount of time, infrastructure, workforce, and fuel needed for the delivery is anticipated to lower while maintaining a high truck utilisation rate.
The growth in the Part-Truckload (PTL) segment and the use of larger tractor-trailer trucks are reducing line haul expenses (35-37% of revenues). This is achieved through better truck utilisation (tighter packing of B2B and B2C goods), using higher capacity trucks of 43-46 feet vs traditional 32 feet, and longer running distances of 25,000 km per month vs traditional 10,000 km.
Q4 of FY23 marked Delhivery’s return to being EBITDA breakeven. This positive momentum is expected to continue going forward. The gross margins in the transport business (Express+PTL) continue to stay over 50%, and further cost optimization efforts on the first mile, mid-mile and last mile would improve it further. It is anticipated that increases in network utilisation and sustained corporate overheads to keep EBITDA in positive territory.
Kotak Institutional Equities and ICICI Direct Research have given optimistic views on Delhivery’s growth prospects. These are mainly due to the company’s efficient logistics services and strategic expansion plans, which position it as a standout in the logistics sector.
Conclusion
Despite many challenges, Delhivery remains a key player in Indian logistics, continually expanding its services and network. Given their strong position, it will be interesting to see how they sustain and expand their market share.
Given their strong position, it will be interesting to see how they sustain and expand their market share as more e-commerce businesses manage their logistics. Additionally, it will be fascinating to watch if they can turn a profit and reach the target of Rs 600 per share. What are your thoughts on Delhivery’s performance and potential? Do you own any Delhi stocks? Share your insights below.
Written by Fazal Vahab
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