Logistics firm Delhivery's net loss widened to ₹195.7 crore for the third quarter ended December 2022 (Q3 FY23) as compared to a loss of ₹127 crore in the year-ago quarter. Its revenue also declined around 9 percent to ₹1,823 crore as against ₹2,019 crore in the same quarter last year.
The company incurred an adjusted EBITDA loss of ₹67 crore in Q3 FY23 as compared with an adjusted EBITDA loss of ₹74 crore in Q3 FY22.
Delhivery said that its overall business economics continued to improve with the adjusted EBITDA margin improving to -3.7 percent in Q3 FY23 from -7 percent in Q2 FY23, driven by a combination of factors. However, the adjusted EBITDA margin tumbled on YoY basis from 3.7 percent posted in Q3 FY22.
In line with Q2 FY23, the incremental gross margin in the Express Parcel and PTL businesses combined continued to be approximately 50 percent in Q3 FY23 as well. Additionally, improved capacity utilization in the network, ongoing cost optimization measures and continued focus on revenue quality & margin improvements across customer segments also contributed to improvement in adjusted EBITDA, said the company.
Despite weak results, brokerages have retained their ‘buy’ calls on the stock. Let's see why:
ICICI Securities: The brokerage has maintained its ‘buy’ call on the stock with a target price of ₹425, implying a potential upside of 35 percent.
"Delhivery’s Q3FY23 revenue was lower than our estimates due to delayed recovery in PTL volumes. Management clarified that this was due to network footprint optimisation and subdued volumes in the first few days of Q3FY23 caused by unseasonal rains in Tauru. According to the management, volumes have been picking up steadily since then. Management also mentioned that it has been renegotiating contracts with low-paying clients in the PTL business. This resulted in PTL (part truckload) yields improving by 4.8 percent QoQ. Management expects further improvement in yields in Q4FY23," noted the brokerage.
It further added that Express delivery volumes at 170mn (flattish YoY) were a positive surprise given that 5 mn parcels in Q3FY22 were contributed by Shopee with overall muted e-commerce sector growth. The management believes it has gained a share in Q3FY23 in both Express parcel and PTL segments.
“Given the slower-than-expected recovery in PTL, we have cut FY24E/25E revenue and EBITDA estimates by 9 percent each and the target price by 8 percent,” it said.
Kotak Institutional Equities: The brokerage has retained its ‘buy’ call on the stock with a target price of ₹395, implying an upside of 25 percent.
"Delhivery reported a miss in 3Q results primarily on account of weaker-than-expected recovery in PTL volumes. Operationally, it showed meaningful improvement in key elements of its cost structure much ahead of what the benign growth in volumes would have suggested. Key elements of its network strategy well explained in the results concall should meaningfully allay concerns of the logistics ecosystem getting disrupted by peers/customers of Delhivery. Weakening macro will only improve Delhivery’s positioning in our view," explained Kotak.
The brokerage further informed that the key elements of Delhivery’s network strategy include (1) an integrated network (first, mid, last mile), (2) two complementary conduits of cargo ( Express Parcel and PTL), (3) lower client concentration risks and (4) mesh network coupled with the ability to dynamically decide route allocation.
Post the earnings, the brokerage cut its service EBITDA estimates by 3 percent for FY24/25.
Jefferies: The global brokerage also retained a ‘buy’ call on the stock with a target price of ₹570, indicating a massive potential upside of 81 percent.
“Q3 EBITDA loss was lower than expectations as gross profit was better and other expenses lower. Management exhibited confidence in reducing losses further. We believe current price factors less than 10 percent express parcel growth in the next 3-5 years vs over 30 percent levels seen in the past. We believe B2B (Spoton), operating leverage and low e-commerce penetration is driven growth are being underestimated," said the brokerage.
Dominant in B2C, Delhivery is making a mark in B2B through its Spoton acquisition. Integration issues and slowdown at its e-commerce clients in the next 9-12 months are headwinds, the note stated, adding that the company should break even in FY25E-26E with the management’s focus on profitability in an industry with a strong growth tailwind.
The logistics stock has jumped over 5 percent in February so far after 4 consecutive months of losses. The stock shed 9 percent in January, 1 percent in December 2022, 2.5 percent in November 2022 and a massive 41 percent in October 2022.
Since its listing in June last year, the stock has cracked nearly 30 percent.
