Delhivery Limited
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Issue Details
Issue Size: Rs 5,235 Cr
Fresh Issue: Rs 4,000 Cr
Offer for Sale: Rs 1,235 Cr
Issue Period: May 11, 2022 to May 13, 2022
Price Band:
Rs 462 - 487 per share
Market Lot:
30 Shares
Minimum
Amount: Rs 14,610
Objects
of the offer
The net proceeds from the
fresh issue will be used for the below purposes:
Funding organic growth
Funding inorganic growth through acquisition and
strategic initiatives
General corporate purposes
Company
Overview
Delhivery is the largest and
fastest-growing fully-integrated logistics services player in India by revenue
as of FY21. It operates a high-quality
logistics infrastructure, works with a vast network of domestic and global
partners and has made significant investments in automation, self-developed
logistics technology and data intelligence capabilities.
The key differentiators of its
business are:
Integrated
solutions: Provides a full range of logistics services,
including express parcel delivery, heavy goods delivery, part truckload (PTL)
freight, truckload freight (TL), warehousing, supply chain solutions,
cross-border express and freight services and supply chain software, along with
value-added services such as e-commerce return services, payment collection and
processing, installation and assembly services and fraud detection.
Proprietary
logistics operating system: Their in-house logistics technology stack is
built to meet the dynamic needs of modern supply chains. They have over 80
applications through which they provide various services.
Data
Intelligence: Delhivery collect, structure, store and process vast amounts of
transaction and environmental data to guide real-time operational decision
making.
Automation:
Operated 21 fully and semi-automated sortation centres and 82
gateways across India (excluding Spoton which they acquired in August 2021 to
further scale their PTL freight services business) as of December 31, 2021.
Delhivery had a Rated Automated Sort Capacity of 3.70 million shipments per day
as of December 31, 2021. The company has automated material handling systems at
its gateways in Tauru (Haryana), Bhiwandi (Maharashtra) and Bengaluru
(Karnataka).
Unified
Infrastructure and Network: Operates a pan-India network and
provides its services in 17,488 pin codes, as of December 31, 2021, covering
90.61% of the total pin codes.
Asset-light operations: Delhivery has an asset-light business
model and thus, leases a majority of its network
infrastructure and vehicles operating in its network. As of December 31, 2021, excluding Spoton, the company operated 14.27
million square ft. of leased infrastructure and partnered with over 11,000 vendors and network partners who provide
pickup, delivery services and truckload capacity.
Delivery services include:
Express Parcel Services (70% of FY21 revenue)
PTL Services (11% of FY21 revenue)
TL Services (6% of FY21 revenue)
Supply Chain Services (11% of FY21 revenue)
Cross-Border Services (3% of FY21 revenue)
As per the RedSeer Report, Delhivery was the largest and fastest-growing 3PL express parcel (and heavy parcel) delivery player in India by volume and revenue as of FY21 and the 9 months ended December 31, 2021, with a market share of ~24% to 25% of the overall e-commerce parcel volumes (including captive players) in India for the 3 months period ended December 31, 2021.
Tremendous Industry Opportunity
The Indian logistics sector presents a large addressable
opportunity and is expected to grow to US$365 billion by FY 2026 at a CAGR of 9%.
Organized players accounted for only ~3.5% of the logistics
market in FY20 and are expected to grow at a CAGR of 35% between FY20 and FY26,
taking their share to 12.5-15% by FY26.
The Express Parcel Service segment, which is mostly catered
to by the organized players, is expected to grow at 28-32% CAGR, primarily
driven by the e-commerce industry, which grew by 31% over FY18-20 and is
estimated to grow by 30-33% over FY20-26.
Key Financial and Operational Performance
|
9 months
period ended 31 Dec’21 |
FY21 |
FY20 |
FY19 |
PIN code
reach |
17,488 |
16,677 |
15,875 |
13,485 |
Infrastructure
(in million square
feet) |
14.27 |
12.23 |
9.85 |
5.96 |
No. of
gateways |
82 |
88 |
83 |
73 |
Rated
Automated Sort Capacity
(in million parcels/day) |
3.70 |
2.62 |
2.26 |
1.58 |
Number
of delivery points |
3,836 |
3,382 |
2,973 |
2,258 |
Team
size |
86,184 |
53,086 |
40,416 |
28,830 |
No. of
Active Customers |
23,113 |
16,741 |
7,957 |
4,867 |
Revenue
from contracts with customers ( Rs Cr) |
4,810.53 |
3,646.53 |
2,780.58 |
1,653.90 |
EBITDA
(Rs Cr) |
(231.79) |
(100.38) |
(172.05) |
(137.07) |
Net Loss
for the period (Rs Cr) |
(891.14) |
(415.74) |
(268.93) |
(1,783.30) |
Return
on Net Worth |
(14.90%) |
(14.66%) |
(8.48) |
(52.63%) |
Cash
from Operating Activities |
(509) |
48 |
(634) |
(242) |
The company’s revenue from contracts rose
at a CAGR of 48.49% in FY19-21,
primarily driven by an increase in revenue from services. However,
Delhivery continues to be a loss-making company, though it has improved its losses from Rs 1,783.30
Cr in FY19 to Rs 415.74 Cr
in FY21. Moreover, it remains EBITDA
negative and has experienced a negative return on net worth.
Strategy
·
Expand investments in infrastructure and network
·
Continue to build scale in existing business
lines
·
Deepen the customer relationships
·
Enhance technology (software and hardware)
capabilities
·
Externalise logistics operating system
·
Create new adjacent growth vectors
·
Expand into high-growth international markets
similar to India
·
Pursue strategic alliances and select
acquisition and investment opportunities
Key
risks
·
Delhivery
has a history of net losses and may not achieve profitability in the future
·
Heavy reliance on network partners and other third
parties for Transportation vehicles and manpower
·
High dependency on the e-commerce industry
despite diversifying its offerings into other industry verticals
·
Many segments in which the company operates have
low barriers to entry, resulting in a highly fragmented market with intense
competition from several organized and unorganized players
· High customer concentration (top five clients contributed ~42% of FY21 revenue from its contracts with customers). If the company fails to expand its business with existing customers, it will have an adverse impact on the business
Valuation
& Conclusion
To summarise this IPO, Delhivery is the largest
player with a fully integrated logistics services portfolio with technology and
automation at its core. Underpinned by the huge opportunity, the Indian
logistics market is ripe for disruption and Delhivery, with its focus on the
rapidly growing e-commerce market, has promising growth potential ahead of
it.
Coming to financials, while the revenues are
increasing, the company’s losses are telling us a different story. Although it
has improved its losses when compared to FY19, Delhivery’s losses grew in 9
months period ended 31 Dec’21, which flags a risk. Further, the fact that the
company is planning a foray into the financial services place also raises concerns
on capital allocation.
From a valuation standpoint, based on the
annualized FY22 figures, the issue appears to be steeply valued at a price to
sales ratio of 5.50x when compared to its listed peers. This is despite the
fact that the list peers are profitable (Blue Dart, TCI Express, Mahindra
Logistics). Since past few months now
we are witnessing that the valuation of high growth companies across the globe
is taking a beating due to the rising interest rate scenario. In Indian markets
itself, we have already seen the fate of other loss making companies who went
public last year with high asking valuations.
So considering these factors, we advise investors
to AVOID the IPO at the moment. However, given the huge growth potential,
investors should keep Delhivery on their radar and reconsider their investment
decisions once the company's financials improve and valuations become
reasonable.