Shares of logistics service provider Delhivery has been on a downtrend for the majority of the month of October.
The stock which has lost nearly 40 percent in October so far, fell 3.5 in intra-day deals on Friday to hit its all-time low of ₹356. Over the past three trading sessions, the stock has lost 11 percent of its value.
Delhivery was listed on the exchanges on May 24, 2022, at ₹495.2 against the issue price of ₹487. Since hitting its record high of ₹708.45 on July 21, the stock has been constantly declining. The scrip has tanked 50 percent from its all-time high, hit in July and 28 percent from its listing price.
Despite its recent crash, brokerage house Kotak Institutional Equities has upgraded the stock to 'add' from 'reduce' earlier and believes that it is well-placed to weather the slowdown. It has given a fair value of ₹415 for the stock, indicating an upside of 8 percent. It is important to note that Kotak's target price remains below the firm's IPO price of ₹487.
Even though the brokerage upgraded Delivery's rating, it cut the stock's target price by 23 percent from ₹540 earlier.
The brokerage believes Delivery's weak business commentary reflects more of a moderation in the industry growth, led more by cyclical factors than structural impediments of market share loss.
"We find it well-placed operationally and strategically to weather near-term weakness in the industry growth and eventually drive the increasing relevance of third-party logistics (3PL) in e-commerce logistics," said Kotak.
In the business update released on October 19, Delhivery said, "Market sentiment in Q2 continued to remain broadly unchanged from Q1. Consumer discretionary spending remained muted due to continuing high levels of inflation, with average user spending and total active shoppers remaining flat or lower during the ongoing festive season, as per the industry reports. Industrial output also remained weak in the first 2 months of the quarter. In spite of the challenging market conditions, our market position remains strong owing to our structural cost advantages, network size and investments in capacity."
It noted that it was likely to see an adverse impact from high inflation and would clock moderate growth in shipments for the rest of the financial year.
"As inflationary pressures and service disruptions due to monsoon ease across the country, we expect improvement in volumes, revenue, and service margins going forward, "the company said in an exchange filing.
As per Kotak, Delhivery’s press release suggests a weak low-to-mid single-digit QoQ growth in express parcel volumes for Q2.
"In our assessment, this reflects growth moderation in industry volumes more than market share loss for Delhivery. We base the same on Flipkart’s recent commentary, moderating QoQ growth trends for Meesho, and
Amazon's growth trajectory having moderated in FY2022 itself," noted the brokerage. However, it added that the smaller element behind Delhivery’s weak commentary may have been factors specific to Delhivery, including higher exposure to non-metro cities that were impacted by erratic monsoons and lower/declining exposure to the fast-growing Meesho versus other 3PL peers.
Despite these headwinds, the brokerage opined that operationally, Delhivery is well-placed in terms of its large scale, and lean cost structure. Strategically, it is well-placed versus peers given its diversified revenue mix and lower dependence on the top-three e-commerce players, stated Kotak. Over time, it sees Delhivery driving the 3PL story of e-commerce logistics.
Post the business update, the brokerage has lowered revenue and adjusted EBITDA estimates by 7-9 percent and 22 percent for FY2024-25.
Delhivery’s IPO was the second biggest this year after LIC and has been among the top five since 2021. Delhivery was listed on the exchanges on May 24, 2022, at ₹495.2 against the issue price of ₹487.
Meanwhile, it is important to note that the lock-in period for its pre-IPO shareholders expires on November 24, which may also lead to more selling of shares.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.