Delhivery is a provider of fully integrated logistics services, including express parcel delivery, heavy goods delivery, part truckload freight, truckload freight (point-to-point freight), warehousing, supply chain solutions, cross-border express and supply chain software. It also offers value-added services such as e-commerce returns services, payment collection and processing, installation and assembly services and fraud detection. It currently services 18,435 PIN codes, covering 95.5 per cent of the 19,300 PIN codes in India.

The logistics and supply chain start-up had its initial public offering on May 11 and was subscribed 1.63 times. It was listed on May 24 and opened at ₹493, as against an issue price of ₹487. Although still higher than IPO prices, the company’s share price fell by 7 per cent between August 8 and August 10 and further by around 6 per cent on August 11, after a weak June quarter.

The company reported revenue from operations of ₹1745.7 crore for the quarter ended June 30, witnessing a nearly 32.5 per cent Y-o-Y increase. Although this is indicative of positive revenue growth, net loss for the period widened by 208 per cent and stood at ₹399 crore, as against ₹129.6 crore one year back. This loss was due to a combination of operating and one-time costs. Higher-than-forecasted volumes created some bottlenecks at key gateways in some facilities, affecting operations.

The company went from being adjusted EBITDA positive at ₹81 crore in Q4FY22 to a negative adjusted EBITDA of ₹217 crore this quarter. The adjusted EBITDA margin stood at a negative 12.5 per cent. Underutilisation of existing capacity and integration costs with respect to an acquisition it had made pre-IPO (SpotOn) are estimated to have impacted EBITDA negatively but are unlikely to carry forward in the coming quarters.

Delhivery had acquired SpotOn Logistics in August 2021, to further strengthen its B2B vertical. The integration of both these networks took place in three stages throughout the last financial year and Q1 of FY23 and now stands completed.

Reduction in volumes from select clients has also affected these figures.

Total expenses have increased by 2.1 per cent sequentially from ₹2,254 crore in Q4 to ₹2,206 crore and by 30 per cent on a Y-o-Y basis from ₹1,751 crore in Q1FY22.

At the time of its IPO, the logistics player was valued at EV/Revenue (annualised nine-month FY22 revenue) of 4.5 times. It is now valued at 4.37 times EV/Revenue (projected FY23 revenues). Compared to domestic listed peers, it neither appears expensive nor cheap. While the company reached a near break-even on an adjusted EBITDA basis in FY22 (adjusted EBITDA margin of 1 per cent), it reported negative adjusted EBITDA for Q1FY23 (adjusted EBITDA margin of -12.5 per cent), revealing an unclear path to profitability. Nevertheless, the company outstrips its peers in terms of revenue growth having a projected CAGR of 49 per cent between FY20-23.

The Indian logistics industry is expected to grow by a CAGR of 9 per cent from $216 billion in FY20 to $365 billion by FY26, mainly driven by strong underlying economic growth, improvements in transportation infrastructure and growth of the digital economy and offline commerce, according to research by RedSeer. Before it looks to increase prices, the company is currently focusing on driving down costs, gaining market share, and improving efficiencies.

As the company gains market share, it can reap gains from having a large hold in the sector as well as overall industry growth. This is of course, is subject to the company making progress on its profitability fronts and investors should track this.

The writer is an intern with BL Portfolio

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