Emkay Bullish On Delhivery, Initiates Coverage With A Target Price Of INR 465

Brokerage Emkay Global Financial Services on Monday (July 10) initiated coverage on Delhivery with a ‘BUY’ rating, saying the startup is well-placed to make the most of the long-term structural growth in India’s logistics space.

The brokerage set a target price of INR 465 for Delhivery, which represents an upside of 16% to the stock’s last close at INR 399.15 on the BSE on Monday.

In a research note, Emkay Research said Delhivery’s scalable asset-light model, coupled with a robust tech stack, offers it an ‘infallible opportunity’ to leverage the country’s burgeoning logistics space. 

“Being the lowest-cost operator in the express segment gives it the right to win in an otherwise commoditised business. Scale, integrated operations, wider mesh network and tech capabilities are likely to sustain and reinforce this advantage,” it said. 

Elaborating on this, Emkay analysts noted that Delhivery’s cost of transportation in the B2C express segment is 20% cheaper than its peers owing to its denser network, scale and a differentiated business model of combining B2C express with B2B partial truck load (PTL) networks (offers strong delta in mid-mile trucking costs).

The brokerage firm said Delhivery is well-placed to leverage the shift towards organised, fully integrated logistics players despite a majority of its revenue coming from the two niche sub-segments of B2C express and PTL. Emkay sees Delhivery achieving breakeven on an adjusted EBITDA level in FY23 on the back of operating leverage, network stabilisation and subsiding capex intensity.

However, it also said that the logistics startup derives a major chunk of its revenue from ecommerce clients and any slowdown in the space can impact its revenue. The report noted that 45% of Delhivery’s total revenue comes from just five customers.

It also cited issues such as external calamities, operational risks due to dependence on contractual labour, third-party assets, and pricing pressures as other key risks to the company’s business. 

Meanwhile, ICICI Direct has also reportedly given a ‘BUY’ call on Delhivery with a target price of INR 500. It expects Delhivery’s market price to reach the defined target over the course of next one year. 

The positive reports come a few days after Kotak Institutional Equities said that the launch of B2B transportation services by Flipkart-owned Ekart can impact Delhivery’s medium-term growth and alter its economics. It downgraded Delhivery to ‘REDUCE’ from a ‘BUY’ rating, and postponed the cash flow break-even estimate for the company by another year to FY27.

The development comes at a time when new-age tech stocks have rebounded strongly in the last few months after a slump in 2022. Delhivery has also benefited from this change in investor sentiment. 

The rise in the share price provided a profit booking opportunity to some of Delhivery’s investors. Last month, Carlyle Group’s subsidiary exited Delhivery with about 2.7X returns by selling shares through a bulk deal. Before that, SoftBank also offloaded 2.8 Cr Delhivery shares worth INR 954.2 Cr via multiple block deals.

Amid all this, Delhivery continues to rake up heavy losses. It reported a loss of INR 1,007.7 Cr in FY23, a marginal decline from INR 1,011 Cr in FY22. Operating revenue grew 5% to INR 7,225.3 Cr in FY23 from INR 6,882.2 Cr in FY22.