The IPO of the logistic company Delhivery was launched on Wednesday at a price band of ₹462-487 per share.
IPO analysis: Here's how Delhivery stacks up against its competition
TL;DR.
Delhivery Limited is the largest and fastest-growing fully-integrated logistics player in India by revenue as of Fiscal 2021. It has built a nationwide network with a presence in every state, servicing 17,488 PIN codes.
The company will raise ₹4,000 crore via issuance of fresh equity shares with a face value of Re 1 each, whereas its existing shareholders and promoters will offload shares worth ₹1,235 crore via offer for sale (OFS) route.
The IPO is the second biggest for Dalal Street in the calendar year 2022 (CY22) after LIC.
The company has reserved shares worth ₹20 crore for employees who will get shares at a ₹25 discount to the final offer price.
Meanwhile, Delhivery's initial share sale got subscribed 21 per cent on the first day of subscription on Wednesday.
Retail Individual Investors (RIIs) got subscribed 30 per cent, while Qualified Institutional Buyers (QIBs) received 29 per cent subscriptions and non-institutional investors 1 per cent.
Company overview
Gurugram-based Delhivery Limited is the largest and fastest-growing fully-integrated logistics player in India by revenue as of Fiscal 2021, which has been exclusively commissioned and paid for by it in connection with the Offer.
The company offers a full range of logistics services, including express parcel and heavy goods delivery, part truckload freight ("PTL"), truckload freight ("TL"); warehousing, supply chain solutions, cross border express and freight services; and supply chain software, along with value-added services, such as e-commerce return services, payment collection and processing, installation and assembly services, and fraud detection.
Delhivery’s team of 505 engineering, data, and product professionals (excluding Spoton), as of December 31, 2021, has built proprietary technology systems that enable it to offer integrated logistics services to a wide variety of customers while remaining asset-light and ensuring service quality and efficiency. The technology stack orchestrates its network infrastructure and consists of more than 80 applications that encompass all supply chain processes.
The company has also expanded internationally by establishing a reciprocal partnership with Aramex and a strategic alliance with FedEx, both global express leaders, for customs clearance, pickup, and delivery services.
Delhivery entered into an alliance with Aramex in March 2019, expanding its coverage in the Middle East and North Africa, and providing reciprocal access to Aramex customers to its India network.
Competitive strength
Delhivery has built a nationwide network with a presence in every state, servicing 17,488 PIN codes during the nine months period ended December 31, 2021, covering 90.61% of the 19,300 PIN codes in India as of December 31, 2021 (per India Post).
| Key operating and financial performance parameters | FY19 | FY20 | FY21 | 9MFY22 |
| Pin Code reach | 13,485 | 15,875 | 16,677 | 17,488 |
| Infrastructure (in Mn Sq.ft. | 6.0 | 9.9 | 12.2 | 14.3 |
| No. of gateways | 73 | 83 | 88 | 82 |
| Million parcels/day | 1.6 | 2.3 | 2.6 | 3.7 |
| Number of delivery points | 2,258 | 2,973 | 3,382 | 3,836 |
| Team size | 28,830 | 40,416 | 53,0866 | 86,184 |
| No. of Active Customers | 4,867 | 7,957 | 16,741 | 23,113 |
| Revenue ( ₹Cr) | 1,654 | 2,781 | 3,647 | 4,811 |
| Restated loss for the period ( ₹Cr) | -1783.3 | -269 | -416 | -891 |
| Source: RHP, ICICI Securities |
The Companie's network infrastructure includes 122 gateways, 21 automated sort centres, 93 fulfilment centres, 35 collection points, 31 returns processing centres, 244 service centres, 132 intermediate processing centres and 2,521 direct delivery centres as of December 31, 2021, including Spoton’s 40 gateways and 138 service centres. Together with Spoton, it operated 4,179 delivery points, as of December 31, 2021.
Further, Its self-delivery network is augmented by 1,209 partner locations that expand its reach, and provide critical flexible capacity and redundancy and Spoton’s service centres are augmented by 205 additional locations operated by business associates.
Deals
In August 2021, it acquired Spoton Logistics Private Ltd (“Spoton”), an express PTL freight service provider in India, to further build scale in its PTL freight services business.
Spoton delivered 758,730 tonnes and 683,999 tonnes of freight in Fiscal 2021 and the nine months period ended December 31, 2021, respectively, and has a network presence across 13,087 PIN codes with 2.85 million sq. ft. of infrastructure as of December 31, 2021.
Objective of Issue
Delhivery proposes to utilise the Net Proceeds towards - Funding organic growth initiatives and inorganic growth and other strategic initiatives, General corporate purposes.
| Particulars in ( ₹in Crores) | Total Estimated amount |
| Funding Organic growth initiatives | 2000 |
| Building scale in existing business lines and developing new adjacent business lines | 160 |
| Expanding network infrastructure | 1360 |
| Upgrading and improving proprietary logistics operating system | 480 |
| Funding inorganic growth through acquisitions and other strategic initiatives | 1000 |
| General corporate purposes | * |
| Total Net proceeds | * |
| Source: RHP |
In addition, Delhivery expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, including among other things, enhancement of its brand name among existing and potential customers, retaining existing and attracting potential employees, and creation of a public market for the Equity Shares in India.
Financials
Delhivery's revenue from contracts with customers has grown from Rs.16,53.89 Crore in Fiscal 2019 to Rs.3,646.52 Crore in Fiscal 2021, or a CAGR of 48.49%. Further, its revenue from contracts with customers has improved from Rs.2,643.8 Crore for the nine months period ended December 31, 2020, to Rs.4,810.53 crore for the nine months period ended December 31, 2021, or an increase of 81.95%.
| Financials ( ₹Cr) | FY19 | FY20 | FY21 | 9MFY22 |
| Total Operating Income | 1,653.9 | 2,780.6 | 3,646.5 | 4,810.5 |
| Operating Expenses | 1,250.7 | 2,189.6 | 2,788.3 | 3,650.8 |
| Gross Profit | 403.2 | 591.0 | 858.2 | 1,159.7 |
| Gross Profit Margin (%) | 24.4 | 21.3 | 23.5 | 24.1 |
| Employee Expenses | 344.6 | 490.9 | 610.9 | 972.6 |
| Other Exp | 196.4 | 272.2 | 361.0 | 422.6 |
| Total Operating Exp | 1,791.7 | 2,952.6 | 3,760.3 | 5,046.0 |
| EBITDA (ex-Forex) | -137.8 | -172.0 | -113.7 | -235.5 |
| Foreign Exchange Gain/Loss | -1,480.7 | 0.0 | -9.2 | -299.7 |
| Other Income | 41.0 | 208.1 | 191.8 | 100.9 |
| Profit Before tax | -1,783.3 | -268.8 | -415.7 | -898.7 |
| Tax | 0.0 | 0.1 | 0.0 | -7.6 |
| PAT | -1,783.3 | -268.9 | -415.7 | -891.1 |
| EPS (Adjusted) | -24.6 | -3.7 | -6.3 | -12.3 |
| Source: RHP, ICICI Securities |
Peer Comparision
| Company Name | Revenue (Cr) | Operating Expenses (Cr) | Profit Before Tax (Cr) | Profit After Tax (Cr) | EPS (Rs) | PE | PBV | OPM % | ROE (%) |
| Blue Dart Express | 4,437.5 | 3,705.2 | 503.5 | 376.4 | 158.7 | 42.38 | 18.58 | 22.67 | 18.80 |
| Mahindra Logistics | 3,640.6 | 3,451.5 | 32.7 | 24.4 | 3.4 | 95.61 | 6.00 | 4.84 | 5.24 |
| TCI | 2,937.2 | 2,204.2 | 156.2 | 134.8 | 17.5 | 49.28 | 12.80 | 15.91 | 26.24 |
| Delhivery | 4,180 | 3,650 | -898.7 | 891.1 | -12.3 | - | -3.37 | -15 |
Key Risks
Below are the Key risks stated by the ICICI securities.
Company continues to incur operating losses: Delhivery targets higher volume growth by providing its customers with competitively priced service offerings. The company may continue to experience limited profit margins on its service offerings, which may contribute to losses and negative cash flow.
Competes in intense competition and fragmented industry: Many segments in which the company operates have low barriers to entry, resulting in a highly fragmented market. Increased competition from unorganised third-party logistics or transport providers could force to lower the prices.
In addition, major eCommerce marketplaces may choose to build or further develop their respective in-house fulfilment capabilities to serve their logistics needs and compete with others, which may significantly affect Delhivery market share and total parcel volume.
Greater reliance on asset partners due to asset-light business: Delhivery engages contractual manpower agencies to provide a large number of contracted workers (36956 numbers) for the logistics facilities. In addition, 99.5% of the total trucks and other transportation vehicles were leased from third-party fleet partners. Any disruption in relation to such stakeholders will have a negative impact on business.
Brokerage views
Yes Securities has given a subscribe rating to the issue as it believes the company’s asset-light business model, cutting‐edge engineering and automation capabilities will help it leverage operating efficiencies and improve profitability in coming years.
Angel One has given a 'Neutral' rating to the issue citing its expensive valuation.
Samco Securities expects the company to continue to experience increasing cost pressures, at least in the short term, due to rising fuel costs. In addition, it said, the issue looks sharply valued at a price-to-sales ratio of 5.5x on annualised FY22 revenue, when compared to its listed peers.
In a pre-IPO note by Motilal Oswal, stated that the major risks to the operating model of the logistics player include its heavy reliance on E-Commerce, despite diversifying into other industry verticals, dependency on network partners and other third parties for transportation vehicles and manpower lower barriers to entry in many of the segments in which it operates, and dependency on certain large customers who contribute significantly to its business.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
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First Published: 13 May 2022, 07:40 AM IST
