All you need to know about Delhivery (The Logistic Giant!) IPO

Published by Sharekhan Education | May 11, 2022

All you need to know about Delhivery (The Logistic Giant!) IPO

About the IPO:

• Fresh issue of Rs.4000 Cr Offer for sale of Rs.1235 cr
• Price band Rs.462-Rs.487
• IPO opens on May 11th, 2022 and closes on May 15th, 2022

Objectives of the issue: 

Funding organic growth 

• Building scale in existing business lines and developing new adjacent business line
• Expanding network infrastructure
• Upgrading and improving its proprietary Logistics operating system

Funding inorganic growth

Business Model

• Delhivery is the largest and fastest-growing integrated logistics player in India, by revenue as of FY21
• The company operates in various logistics business segments such as Express Parcel (contributes~70% revenue), third Party PTL freight player (contributes~11% revenue), TL freight (contributes~6% revenue), and Supply chain services (contributes~11% revenue) and Cross border services(contributes~13% revenue).
• It also offers value-added services such as payment collection and processing, e-commerce return services, installation and assembly services, and fraud detection
• It uses 80 applications that aid in demand forecasting, network design, tracking, real-time optimization, and decision support.
• The company operates 20 fully and semi-automated sorting centers and 86 gateways across India, with a sorting capacity of 3.98m shipments/day
• Delhivery has the highest investments towards technology and automation among e-commerce focused Logistics players in India
• It uses machine learning extensively to build various capabilities, including intelligent geolocation, network design, route optimization, load aggregation, ETA prediction, product identification, fraud detection,
• It has a network of 124 gateways, 20 automated sorting centers, 83 fulfillment centers, 35 collection points, 24 return processing centers, , 120 intermediate processing centers, 249 service centers and 2,235 direct delivery centers
• The company has an asset-light business model which can leverage lower fixed costs and economies of scale fostered by 6000 network partners to provide pickup, delivery services, and truckload capacity
• Delhivery serves a diverse base of 21,342 active customers such  as  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,  in  the  three  months  ended  June 30, 2021
• Its customers also include 675 D2C brands in the e-commerce space
• The company’s mesh network minimizes touchpoints in shipments, cutting handling and boosting precision.

Growth Driver: 

• The Indian logistics industry is a USD216 Bn industry as of FY20. This is expected to grow at a 9% CAGR to USD 365 bn by FY26
• E-commerce will be the primary driver for the Express Parcel Service segment and is expected to grow at a CAGR of 28-32%
• Other growth drivers include a) rising mid-income group, b) availability of low-cost smartphones and reliable internet, and c) emergence of new markets in the form of Tier II towns
• The PTL market, which was estimated to be US$13 billion in Fiscal 2020 is expected to double to US$26 billion  in Fiscal 2026
•  Organized payers are expected to grow at 35% CAGR over FY20-26, increasing their share to 12.5% -15% by FY26.  This is due to e-commerce penetration and evolving business models such as direct-to-consumer (D2C), omni-channel and direct-to-retail

Key Risks:

• The company has a heavy reliance on e-commerce
• It depends on network partners and other third parties for vehicles and manpower
• Low barriers to entry and increased competition
• High dependence on certain large customers

Financials and valuation 

• The company has registered revenue of Rs.4911 cr in 9MFY22 and Rs.3838cr in FY21
• The company has never been able to generate profits and has continued to post losses of Rs.891.14 Cr as of 9MFY22 and a loss of Rs.415.7 cr in FY21
• The company has negative free cash flows in FY21
• The issue is more expensively priced than all its peers in the logistics industry. On an annualized revenue the company is asking for a valuation of 5.5x its sales
• Given that several other logistics players are profitable, it would be prudent for an investor to research and invest in a listed player

This was all about the Delhivery IPO. Want to start investing but don’t quite know how? To start, we suggest you go ahead and register for one of our free Power Money Workshops. Or simply join our investing education program – Stock Investor, to polish your investing skills. Learn to identify solid stocks and invest like a pro with our step-by-step training. So, come and experience it yourself!