Despite Growth Moderation In Ecommerce, Delhivery Placed Well For Growth: Kotak

Delhivery’s current market price neither factors in the growth moderation visible in the ecommerce sector volumes nor limitations to the pace of share gains in the partial truck load (PTL) business, brokerage Kotak Institutional Equities Research said in a note, even as it predicted that the logistics startup will outperform the industry in the long-term. 

The brokerage started the coverage on the logistics player with a ‘reduce’ rating and a fair value of INR 540, which implies a downside of about 5% to Delhivery’s current share price on the BSE.

However, analysts at Kotak expect Delhivery to record an EBITDA compound annual growth rate (CAGR) of 26% over FY25-FY35 period, much ahead of the sectoral growth prospects in its current segments. “Its diversified customer and business mix should protect it strategically from changes in the industry structure,” the note said. 

Delhivery is set to drive the outperformance by a combination of factors, including gaining more market share in its existing lines of work, growing profitability, and entering the large-sized slow PTL segment. 

Speaking about a visible growth moderation in the ecommerce segment, Kotak analysts noted that given ecommerce unicorn Meesho is now focusing on reducing its monthly cash burn, there is merit in being conservative on growth in ecommerce shipment volumes in the next one to two years.

Moreover, Kotak analysts assessed that the ecommerce volumes, excluding Meesho, might have grown closer to or lower than 20% over FY19-FY22 period, reflecting growth moderation for both Amazon and Flipkart since FY18 and FY19, respectively.

However, the brokerage views Delhivery as well-placed as these top three ecommerce platforms form less than 45% of its overall volumes and given the long tail of small customers in ecommerce contributing 25% of its volumes. 

“We expect increasing relevance of social ecommerce, D2C and omni channel ecommerce platforms to increase the share of 3PL (third-party logistics) in ecommerce logistics – Delhivery would be a beneficiary of this trend,” the brokerage added.

Founded in 2011 and listed on Indian stock exchanges in May this year, Delhivery’s services range across express parcel delivery, truckload freight, PTL freight, cross-border delivery and supply chain services.

The brokerage also said that Delhivery is positioned much better than its competitors to continue scaling up its presence at a pace faster than the industry growth.

After all, Delhivery already has a $900 Mn topline in logistics, much ahead of the second biggest logistics player Blue Dart. The startup has also gone into different lines of work while limiting the share of revenues from the express parcel segment, the note said.

However, Kotak also highlighted the constraints to Delhivery’s growth in the PTL business segment in its research. 

“We note constraints that will come in way of it growing very fast in the PTL segment given the long tail of customers,” the brokerage said. “While Delhivery’s interplay of loads and scalable business model should help, there would be constraints in growing much ahead of the market.”

The brokerage believes that there are enough enablers for Delhivery to continue growing its scale faster than industry growth, and thus increase its segmental and overall profitability over time.

Shares of Delhivery closed marginally lower at INR 567.3 on the BSE Friday.

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