Kotak Gives Double Rating Downgrade To Delhivery On Rising Competition, Recent Rally in Stock Price

Success of ecommerce giant Flipkart’s logistics arm can affect logistics unicorn Delhivery’s medium-term growth and alter its economics, Kotak Institutional Equities said in a research note. 

The development comes after Flipkart’s supply chain arm Ekart announced the launch of its B2B trucking and transportation services earlier this week. 

Ekart said its B2B Express service across air and surface modes will cater to brands, manufacturers, and retailers across industries and will use a fleet of over 7,000 trucks across the country. The newly launched service will provide businesses with full truckload (FTL) and part truckload (PTL) services.

With this, Ekart has become the third ecommerce logistics player to enter express PTL business after Delhivery and Xpressbees.

“Flipkart’s logistics arm’s recent entry into Express B2B is one of the latest experiments made by peers/customers to enter Delhivery’s turf. These are best considered as experiments to start with given Delhivery still doesn’t make money and has a lean operating cost structure,” noted analysts at Kotak. 

“While it being a low probability event, the success of Flipkart’s endeavour in logistics (ecommerce fulfilment earlier and now Express B2B) can alter medium-term growth and economics of Delhivery,” they said.

Meanwhile, we must note that competition is intensifying further in ecommerce logistics space. Danish international courier and supply chain company recently launched a single price-point offering to enter ecommerce logistics in India.

Kotak double downgraded Delhivery to ‘reduce’ from ‘buy’ rating and also deferred the cash flow break-even projections for the company by another year to FY27.

Kotak reduced its fair value on Delhivery by 5% to INR 390.

The development comes amid a significant recovery in new-age tech stocks over the last two quarters. Delhivery has also gained over 18% year to date. However, its gains are lower compared to other new-age tech stocks such as Paytm, PB Fintech, and Zomato, which are now up in a range of 25% to over 60% this year.

The recent jump in share price also prompted some of Delhivery’s key investors to book profits. Last month, Carlyle Group-owned CA Swift Investments exited Delhivery with about 2.7X returns by selling 1.84 Cr shares of the startup via block deals worth INR 709.5 Cr.

Prior to that, in March this year, SoftBank offloaded 2.8 Cr Delhivery shares worth INR 954.2 Cr via multiple block deals.

Meanwhile, Delhivery continues to remain a loss-making venture. In Q4 FY23, its net loss widened 32% year-on-year to INR 158.6 Cr. However, it was a 19% decline from INR 195.6 Cr loss reported in Q3 FY23.

Delhivery shares ended today’s session marginally lower at INR 392.45 on the BSE.

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