The ₹5,235-crore initial public offer (IPO) of India’s largest logistics service provider Delhivery opens for subscription today. The issue, which closes on May 13, 2022, is the second-biggest IPO of 2022 after the mega IPO of LIC.
The size of the IPO has been cut to ₹5,235 crore from ₹7,460 crore planned earlier. The IPO consists of a fresh issue of shares worth ₹4,000 crore, and an offer-for-sale of ₹1,235 crore. The price band of the issue is set at ₹462-487 a share. The allotment of shares will be done on May 19.
Delhivery provides a full range of logistics services, including express parcel delivery, heavy goods delivery, 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, and payment collection and processing, installation and assembly services. It operates a pan-India network and provides services in 17,045 PIN codes. The Gurugram-based firm became a unicorn in 2019 when it raised $413 million in a Series F round led by SoftBank Vision Fund.
Brokerages have mixed reviews regarding the firm. While some brokerages believe the company's business model will help improve profitability in the coming years, others believe it is aggressively priced given the current market conditions.
Brokerages have to say:
The brokerage has given a subscribe rating to the issue. The brokerage 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. It has listed a unified infrastructure network, proprietary technology stack and capabilities, vast amount of data intelligence and R&D, and strong relationship with a diversified customer base as key positives of the company.
"Based on annualized FY22 numbers, the IPO is priced at EV/Sales of 5.1 times and Price to Book value of 5.2 times at the upper price band of the IPO. For 9MFY22 the company has reported an EBITDA loss of ₹232 crore and a net loss of ₹891 crore. In the Indian market, no other peer group has the same business model as Delhivery. The company has reported good revenue growth of 82 percent in 9MFY2022 and it is expected that the company may turn EBITDA positive by the FY2022 end. Given the expensive valuation, we are assigning a NEUTRAL recommendation to the Delhivery IPO."
The brokerage has an 'Avoid' rating on the IPO. The brokerage 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. Considering the current increasing interest rate environment, where valuations of high growth companies across the globe are taking a beating, Delhivery’s expensive valuation is concerning, it said.
The brokerage stated the issue is aggressively priced. Moreover, despite improvement in the topline, the company continues to make losses.
"As we are witnessing the negative market sentiment towards similar category stocks (Zomato, PayTM), we suggest investors to 'Avoid' this issue," it said.