Delhivery IPO Fundamental Analysis (Avoid)

• Delhivery (“the Issuer”) is a fully-integrated logistics services player in India which has a pan-India presence and provides services in 17,488 postal index number codes, as of Dec 31st, 2021.
• It provides supply chain solutions to e-commerce marketplaces, direct-to-consumer e-tailers, and enterprises and SMEs across several verticals such as FMCG, consumer durables, consumer electronics, lifestyle, retail, automotive, and manufacturing.
• The Issuer had 21 fully and semi-automated sortation centers and 82 gateways across India (excluding Spoton) as of 31^st Dec 21. Delhivery has a rated Automated Sort Capacity of 3.70 million shipments per day as of Dec 31, 2021. It has automated material handling systems at gateways in Tauru (Haryana), Bhiwandi (Maharashtra), and Bengaluru (Karnataka). Investments in automation infrastructure, such as sorters and other equipment, amounted to ?192.91 million (FY19), ?376.24 million (FY20), ?178.96 million (FY21), and ?1,289.79 million (9MFY21), respectively. The Issuer follows an asset-light model. All logistics facilities are leased from third parties.

Delhivery IPO Services

1. Express Parcel- It has a market share of 24% to 25% (approx.) of the overall e-commerce parcel volumes (including captive players) in India for Q3FY22. The Issuer has an express parcel delivery network that serviced 17,488 PIN codes for 9MFY22. The issuer is also engaged in the delivery of heavy goods, such as large electronic goods, or white goods, furniture, and sports equipment. The Issuer has also launched Delhivery Direct, a C2C shipping service in June 2021, which enables individual consumers to ship parcels from their homes.
2. PTL (Partial Truck Load) Freight- Delhivery launched PTL freight services focused on B2B express segment in 2016. In FY21, it delivered 373,854 tonnes of freight. The Issuer acquired Spoton in August ‘21 to scale the PTL freight services business.
3. TL Freight- Truckload freight brokerage platform, “Orion”, connects shippers with fleet-owners and suppliers of truckload capacity across the country via a centralized bidding and matching engine. The Issuer had 449 Active Customers and over 1,850 transportation partners.
4. Supply Chain Services- Delhivery provides integrated supply chain solutions to e-commerce and corporate customers. The supply chain solutions combine the strength of warehousing and transportation operations, infrastructure, network, and technology with deep data science and business intelligence capabilities. The Issuer operated over 6.08 million square ft. of warehousing infrastructure across 81 warehouses as of 31^st Dec 21, compared to 0.59 million square ft. across 15 warehouses in 2016. 77 active Customers used supply chain services solutions for 9MFY21.
5. Cross border Services- The Issuer provides door-to-door and port-to-port express parcel services to and from India to meet the rising demand for cross-border e-commerce and expanded this offering to include cross-border air-cargo services in late 2019. Delhivery has established a reciprocal alliance with Aramex and FedEx, both of whom are global express leaders, for customs clearance, pickup, and delivery services.

• Acquisitions and Alliances

The company acquired Spoton, an express PTL freight service provider in India, in August 2021. It had a PTL volume of 683,999 tonnes for 9MFY22 respectively. Spoton delivered 758,730 tonnes and 683,999 tonnes of freight in Fiscal 2021 and the nine months period ended December 31, 2021, respectively, and had a network presence across 13,087 PIN codes with 2.85 million sq. ft. of infrastructure as of December 31, 2021.

Primaseller Inc. was acquired on February ‘21 to enable D2C e-commerce brands and Omnichannel retailers to integrate their online and offline channels with the logistics networks.

Roadpiper Technologies Private Limited was acquired in Jan ‘20, a digital freight broker with the fleet owner, load-matching, and pricing applications.

Delhivery entered into an alliance with Aramex in March 2019, expanding coverage in the Middle East and North Africa, and providing reciprocal access to Aramex customers to the India network. In July ‘21, the Issuer entered into a strategic alliance with FedEx, targeted principally at expanding coverage in the North American, European, Australian, and Asian markets. Further, the Issuer’s domestic partners, SpiceJet Limited and Interglobe Aviation Ltd., enable charter and block space cargo and cargo clearance. Delhivery had 407 Active Customers availing cross-border shipping services, transacting over 2,050 tonnes of air freight in FY21.

Several of the customers use more than one of the service offerings with 58.13% of revenues being generated from customers who had used at least two of the services for 9MFY21.

Delhivery had 15,392 permanent employees worldwide and engaged manpower agencies to provide a temporary workforce, which included 36,956 contracted workers as of Dec 31, 2021. Spoton had 1,831 permanent employees and 261 contract workers as of December 31, 2021.

Financial Review

The top line for the last three fiscals (FY19-FY21) has been showing an increasing trend as seen from the table. Delhivery posted total revenues of Rs 4911.41 crore for 9MFY22 and recorded a loss of Rs 891.14 crore for the same period. Total expenses were 118.30% of total income for 9MFY22.

The total revenues of the Issuer increased by 28.43% in FY21 to Rs 3838.29 crore from Rs 2988.63 crore in FY20 due to an increase in service volumes. As a percentage of total income, total expenses were 109.75% in Fiscal 2021 as compared to 108.99% in Fiscal 2020.

The bottom line of the Issuer is weak as the Issuer has not reported profits till now. The Issuer has losses after taxes of Rs (415.74) crore in FY21 and Rs (268.93) crore in FY20 respectively. This is because of increasing operating expenses. Though the adjusted EBITDA losses (margin) have reduced to (0.72%) during 9MFY22 and the losses (adjusted) are reducing over the last three fiscals as can be seen in the table.

Adjusted EBITDA is EBITDA plus share-based payment expenses, a one-time bonus, and rent reversed due to Ind AS 116. The adjusted EBITDA margin is the percentage margin derived by dividing Adjusted EBITDA by revenue from contracts with customers.

Valuation and peer comparison

The company is valued at Rs 35283 crore at the upper price band; with this valuation the IPO is valued at 5.4x its annualized revenues for FY22. The average peer group EV to sales is 3.68x and highest being 6.37x hence the Issue appears to be fully priced. Blue Dart, Mahindra Logistics and TCI Express are the listed peers of the group.

Issue Details

Delhivery IPO opens on 11^th May 2022 with a price band of Rs 462-487 per share. One may apply for a minimum 1 lot (30 shares) amounting to Rs 14,610 under the retail quota. The proceeds of the Issue would be utilized towards funding organic growth (Rs 2000 crore) and funding inorganic growth (Rs 1000 crore). The IPO closes on 13^th May and is expected to list on 24^th May.

Selling shareholders include CA Swift Investments (Rs 454 crore), Deli CMF Pte Ltd (Rs 200 crore), SVF doorbell (Rs 365 crore), and Times Internet Ltd (Rs 165 crore).

Sector Update

New-age and technology-enabled logistics players in India are positioning themselves for growth in digital consumption in India across eCommerce, D2C, Omnichannel, and other digital commerce as well as in offline commerce. Organized logistic players have the potential to grow faster than estimated and to achieve more than an estimated 10-15% market share by FY26.

Delhivery is well-positioned at the cross-section of the various logistics sector growth drivers including infrastructure, offline commerce, digital consumption, and adoption of technology & data sciences. Delhivery has made the highest investments in technology and automation (in warehouse and sortation centres) and has built the largest technology team of engineers, developers, and data scientists, and is well-positioned to gain share across business lines.

The barriers to entry in this segment have become high since express parcel delivery requires large reach, scale operations, flexibility, deep technology integration, and the ability to provide bespoke value-added services.

Summary and Conclusion

Delhivery is a growing 3PL (third party logistics) express parcel delivery player in India. The Issuer has 24-25% market share (express parcel) of the overall e-commerce volume (including captive players) respectively. The Issuer has a diverse base of 23,113 active customers for 9MFY22. The company has grown both organically and inorganically.

Though Delhivery has a strong business model and varied service offerings the Issuer is yet to go profitable and the profitability margins are under pressure due to high operating expenses that a logistic company incurs. Further, any increase in fuel cost and inflationary conditions in the economy may further pinch its financial profile. Hence, one may Avoid the IPO at this time. One may consider tracking its financial performance for a reasonable time and may enter at a suitable time in the secondary market.

Review By CA Priyanka Choudhary on 17th Jan 2022

Review Author

About CA Priyanka Choudhary

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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