Domestic brokerage firm ICICI Securities maintained its positive outlook on Delhivery, a prominent logistics service provider, following its June quarter performance.
Gurugram-based Delhivery is India's largest fully-integrated logistics services provider. With its nationwide network covering over 18,500 pin codes, the company provides a wide range of logistics services such as express parcel transportation, PTL freight, TL freight, cross-border, supply chain, and technology services.
Delhivery has successfully fulfilled over 2 billion shipments since inception and today works with over 26,500 customers, including large & small e-commerce participants, SMEs, and other enterprises & brands, as per the company's website.
The company's shares were listed on the Indian exchanges on May 24, 2022, at ₹495.2, against the issue price of ₹487. The IPO was the second biggest in 2022 after LIC and has been among the top five since 2021.
The shares, however, are trading 15.60% below their IPO price, despite a recent rally of 36.22% from their January 2023 lows. ICICI Securities, through its forecasts, indicates a favorable trajectory for the stock, suggesting a potential to surpass the IPO price.
The company's losses for the first quarter of FY24 narrowed to ₹89.5 crore. In the same period of last year, the company reported a net loss of ₹399 crore and in the preceding March quarter, the company posted a net loss of ₹159 crore.
The improving trend of PAT was on the back of lower depreciation in Q1FY24, due to the large capex undertaken during this quarter, said the brokerage. Its revenue from services was ₹1,930 crore in Q1FY24, up 11% YoY from ₹1,746 crore in Q1 FY23 and up 4% sequentially from ₹1,860 crore in Q4FY23.
Despite Q1 being a seasonally weaker quarter, express parcel revenue grew 2.1% QoQ and 14.3% YoY, broadly in line with the brokerage estimates. Given that most peers in the express parcel segment grew at a slower rate, ICICI Securities believes Delhivery continues to gain market share in this space.
Revenue from Part Truckload services grew 34% YoY to ₹347 crore in Q1FY24 from ₹259 crore in Q1FY23 due to an increase in freight tonnage, 2.7% higher than the brokerage estimate.
The company anticipates there is still a large headroom for growth in the PTL business. The total market size is in the range of USD 3-5 billion and Delhivery has less than 10% market share as of now, according to ICICI Securities.
Truckload and Supply Chain Services businesses saw a YoY revenue growth of 7% and 13% respectively. The adjusted EBITDA loss was reduced by 89% YoY to ₹25 crore in Q1FY24 compared to ₹217 crore in Q1FY23.
The company won important contracts in Q1, from marquee clients like Havells, TATA Motors, and MamaEarth, which the company expects the commercial benefits accruing out of these contracts to reflect in P&L statement Q3FY24 onwards.
The company believes that entry of new players into the B2B space is not a major risk to Delhivery’s earnings as of now. With respect to ONDC, it mentioned that Delhivery is not a significant participant yet but will look to increase their presence on the platform going forward. The company sounded confident of becoming net profitable by late FY25 or early FY26.
Following the company's Q1 performance, the brokerage has revised its target price higher to ₹500 apiece from ₹461 earlier. This new target price signals an upside potential of 21.6% for the stock from its previous closing price.
The brokerage also highlighted some of the key downside risks including pricing pressure in the express parcel or PTL business and medium-term growth visibility worsening due to global headwinds.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.