After Delhivery’s IPO Setback, Can Ecom Express Corner Public Market Success?

After Delhivery’s IPO Setback, Can Ecom Express Corner Public Market Success?

SUMMARY

As per its DRHP, Ecom Express' IPO includes a fresh issue of equity shares up to INR 1,284.5 Cr and an offer for sale (OFS) worth INR 1,315.5 Cr

Unlike its listed peers with diversified businesses, the startup stands apart from a crowded market by focussing solely on express deliveries in the B2C ecommerce space

Ecom Express' growth is a direct reflection of the ecommerce market growth. However, its top 10 customer groups, inclucing Nykaa and Meesho contribute over 84% to its overall top line and any changes in the ecommerce business model will adversely affect its growth expectations

It was November 2021. Buoyed by a surge of high-valuation startup IPOs involving illustrious names like Zomato, Nykaa, Paytm and Policybazaar, ecommerce logistics unicorn Delhivery decided to join the party. It filed draft papers for an IPO worth INR 7,460 Cr, an ambitious bet, as the Indian primary market was buzzing.Set up in 2012 by TA Krishnan (he passed away in 2023), Manju Dhawan, K Satyanarayana and Sanjeev Saxena, it is a pure-play B2C ecommerce logistics provider, with a strong focus on the Tier II market. The 3PL player offers a full range of services, including first-mile pickup, mid-mile transportation and last-mile delivery, as well as reverse logistics and fulfilment.Despite the Delhivery setback and the profitability issues currently plaguing Ecom Express (more on that later), the IPO would be of considerable interest, said Umesh Chandra Paliwal, cofounder and CEO of the unlisted share trading platform UnlistedZone. Paliwal says Delhivery’s diverse operations across ecommerce, international cargo and truck discovery via its Orion platform result in complex and varied margins. In contrast, Ecom Express enjoys higher margins and better operational efficiency by concentrating 80% of its business in Tier II cities where delivery costs are considerably lower.“There hasn’t been a boom in the logistics market, and shareholder return hasn’t been great, even when you look at major players like Blue Dart. But the broader market is not as grim as Delhivery’s performance indicates. The issues stem from a high-valuation IPO and its failure to meet the lofty expectations it had set for investors during the IPO,” the analyst pointed out.Besides, Ecom Express is now EBITDA positive. Despite a dip from INR 83.3 Cr in FY22 to INR 3.3 Cr in FY23, it rebounded to INR 103.6 Cr in FY24. According to Paliwal, its FY24 numbers indicate a deliberate shift in strategy, with the focus on cost efficiency and profitability.   Chhavi Singh, associate partner at Redseer Strategy Consultants, told Inc42 that analysts in the logistics space are concerned about profitability, given the downward pressure on critical metrics like yield and price per shipment. But as with most sectors, economies of scale should improve profitability, she said.However, Ecom Express (and its ilk) has crucial dependency on major ecommerce players for scaling up. For instance, its top 10 customer groups contribute more than 84% to its overall top line. Any changes in the ecommerce business model, such as discontinuing logistics outsourcing, will adversely affect its growth expectations.

Within two months, the logistics unicorn had to cut the issue size to INR 5,235 Cr, citing volatile market conditions. But despite all preventive measures, it made a muted debut in the public market in May 2022.

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