Brokerages remain mixed on logistics firm Delhivery after the company posted weak results for the quarter ended March 2023 (Q4FY23). While Axis Capital has a ‘buy’ call and sees over 37 percent upside, JM Financial and Nuvama have ‘hold’ call and see just 3 percent and 0 percent upside, respectively.
The company's net loss widened to ₹159 crore in the quarter under review as against a net loss of ₹120 crore in the year-ago period. Meanwhile, its revenue from operations also fell 10 percent to ₹1,860 crore in Q4FY23 as against ₹2,072 crore in Q4FY22.
Delhivery's cross-border services business saw a decline in revenue, despite healthy volumes, hurt by falling global yields in both air and ocean freight and the volume impact of the Chinese New Year holidays, the company said in a statement.
The company's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin contracted to 0.3 percent in the March 2023 quarter. However, it turned positive sequentially after reporting a negative margin of 3.7 percent in the previous quarter. As per the firm, this margin improvement was driven by a combination of factors including continued improvement in network capacity utilization, technology-driven cost optimization in fleet operations and improvement in revenue and margin quality across customer segments.
On the outlook, Sahil Barua, Managing Director & Chief Executive Officer, Delhivery, said that critical leading indicators like service precision, network speed, and delivery quality parameters are at all-time high levels and are driving greater customer confidence and share of wallet growth. He added that the company has aggressive infrastructure and capability expansion plans in place and is confident of the strong start in April and the first half of May continuing through the year.
Stock Price Trend
The stock has jumped over 8 percent in 2023 YTD despite giving negative returns in 3 of the 5 months of the current calendar year. The stock has lost over 3 percent in May so far after a 2.9 percent rise in April. Meanwhile, it fell 4 percent in March, again after a 4.4 percent jump in Feb. However, the stock shed 8.9 percent in Jan.
Since its listing in June last year, the stock has tanked over 26 percent from its IPO price of ₹487.
Brokerage views
Axis Capital: The brokerage has a ‘buy’ call on the stock and has raised the target price for Delhivery to ₹495 from ₹440 earlier, indicating an upside of 37.7 percent.
Axis sees Delhivery as a play on the secular growth of the e-commerce industry but expects competitive intensity among private e-commerce third-party logistics (3PL) to abate over the medium term given the challenging funding environment. Management said it consolidated market share in express parcel in Q4, however, Axis sees share gains to continue amid a weak funding environment.
It has increased FY24-25E revenue by 3 percent (express-parcel led) and expanded its FY24-25E adjusted EBITDA margin by 410 bps as the company continues to demonstrate high incremental gross margin and consistent improvement in margins.
JM Financial: The brokerage has a ''hold' call with a target price of ₹370, indicating an upside of just 3 percent
JM noted that Delhivery reported good Q4FY23 results with revenue of ₹1860 crore and a return to adjusted EBITDA profitability at 0.3 percent, a strong beat on JMFe as well as consensus estimates. However, it pointed out that as the company looks to increase penetration of tractor trailers, management anticipates 6-7 percent of FY24 revenue to be invested in capital expenditures. The brokerage estimates a higher EBITDA margin in forecasts but simultaneously lower FCF-EBITDA conversion due to heightened capex expectations and hence retained its 'hold' call.
"We have increased our EBITDA margin estimates substantially considering the success of Delhivery’s cost optimisation measures in the quarter while also increasing PTL revenue considering improved service levels. However, a simultaneous rise in capex requirement results in minimal change to TP in our DCF-based valuation approach for the company," it said.
Nuvama: The brokerage has a ‘hold’ call with a target price of ₹360, indicating almost no potential upside.
"Delhivery reported mixed Q4FY23 earnings. Benefits from PTL volume recovery led to reported and adj. EBITDA turning green, a quarter before we expected. But, a 7 percent QoQ fall in express parcel yields and somewhat somber e-commerce growth expectations (<20 percent) may weigh on the stock. Management hinted at more potential margin gains from PTL volume recovery in H1FY24E, but, beyond that, express parcel’s growth trajectory should be the key variable for the stock," said Nuvama.
It believes that given the investors’ post-IPO experience of profits going to red, now more confidence may return only after 2-3 quarters of continued profits. But, the over 40 percent decline in the stock over the past 9M captures this patchy roadmap to larger profits, it added.
