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

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.

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.

Delhivery was the first logistics startup in India to take the IPO route, following in the footsteps of legacy players like Blue Dart, VRL Logistics, Gati, and Allcargo Logistics. Its top line outpaced many of its listed peers at the time. However, its high valuation and negative cash flow raised red flags among market experts. The company’s stock is still trading 14-16% below its issue and listing prices.

Now its closest competitor, Ecom Express, has joined the IPO lineup, hoping to cash in on the current momentum.

The third-party logistics (3PL) player filed its DRHP in August 2024 for an IPO worth INR 2,600 Cr. This 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.

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.

It has an impressive reach and covers 27K+ pin codes, where nearly 97% of the Indian population resides.   

Among its top 10 customer groups are ecommerce behemoths such as Amazon, Meesho, and Nykaa, indicating its strong integration with the country’s ecommerce ecosystem.

Backed by a number of major investors such as British International Investment PG Esmeralda, and Eaglebay Investment, Ecom Express raised more than $275 Mn through multiple funding rounds. It may also consider a pre-IPO placement of INR 256.9 Cr before filing its RHP.

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. 

According to him, this listing will be a compelling case study, shedding light on whether the impact of off-metro ecommerce growth on the startup’s operational margins will lead to investors’ acceptance in the primary market. 

According to Inc42 analysis, the domestic ecommerce sector is estimated to grow to a $400 Bn+ market by 2030, with 58% of the online shoppers coming from Tier II regions and beyond. Such expansion in recent years has also led to a greater demand for evolved players like the 3PL operators. Per a Redseer report, the 3PL market exclusively servicing B2C ecommerce is on track to expand at a 24-26% CAGR, exceeding $4 Bn by FY29. This is bound to benefit the likes of Ecom Express.  

 

A Deep Dive Into The Draft Filing Of Ecom Express

The public market tends to shy away from IPOs where the OFS outweighs fresh shares, as proposed by Ecom Express (INR 1,315.5 Cr against INR 1,284.5 Cr). Yet, the recent Unicommerce IPO, entirely an OFS, defied this market trend. It not only saw strong investor interest but also listed at a huge premium on BSE and NSE. This reveals a unique trend that businesses with strong fundamentals can flip emerging narratives.

 Ecom Express plans to allocate the bulk of its net proceeds, INR 387.4 Cr, to fund the capex for launching all-new automated processing centres and fulfilment centres. According to its draft filing, INR 30.6 Cr will be used to set up eight processing units.

It will also utilise INR 239.2 Cr to improve its technology, cloud infrastructure and data science capabilities. Ecom Express has tapped into AI/ML and developed its proprietary platform, Bulls.ai, to predict demand patterns and streamline shipping operations. These technology features make delivery more efficient and reduce costs associated with shipment rerouting.

The rest of the proceeds will be used for IT expenditure and debt servicing. 

As of March 31, 2024, the logistics major operated 115 pickup and processing centres, 81 sorting hubs, 32 fulfilment centres, 3,421 delivery centres and 89 return centres.

“If we fail to expand our network at the necessary pace or at all, we may lose potential customers and market share, or a portion of our existing customers’ business to our competitors,” the IPO-bound startup said in its draft paper.

How Ecom Express Differs From Delhivery, Stands Tall In The Logistics Space 

Unlike its listed peers with diversified businesses, Ecom Express stands apart from a crowded market by focussing solely on express deliveries in the B2C ecommerce space. This strategic approach gives the logistics major more scope to scale rapidly in a booming segment.

On the other hand, Delhivery handles both B2B and B2C shipments, offering express delivery, part truckload (PTL), full truckload (FTL) and cross-border logistics. 

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.

Interestingly, six companies, including Delhivery, Ecom Express, Blue Dart, XpressBees and Shadowfax, collectively handled more than 95% of the 3PL deliveries in the B2C ecommerce ‘express’ segment in FY24. Of these, Ecom Express managed more than 27% of the shipments in India.

Another USP of Ecom Express is its emphasis on warehousing solutions and dark stores. This is tailored for its clientele in the burgeoning quick-commerce space, whose growing appeal has compelled online behemoths like Flipkart, Amazon and BigBasket to adopt different variations of this business model, intensifying competition manifold.

According to its DRHP, running dark stores at its delivery centres enables Ecom Express to monetise these facilities and add to its revenue stream. Going forward, it may evaluate and venture into hyperlocal parcel service and customer-to-customer (C2C) deliveries to align better with quick commerce. It will increase growth opportunities and diversify the startup’s revenue stream.

Meanwhile, the startup continues to pursue its asset-light business model, a cornerstone of its core strategy. For instance, all 3,421 delivery centres are leased, not owned, and the same goes for all large facilities. Its processing units, sorting hubs, fulfilment and return centres are either leased or rented properties.  

To reinforce this approach, more than 71% of its deliveries were completed by its gig workforce in FY24.

“This asset-light business model allows us to optimise our network infrastructure and workforce depending on delivery volumes,” the company said in its DRHP.

Delhivery has also adopted an asset-light model but incurs capex as it invests more in fit-out infrastructure, automation, IT assets and tractor-trailers. So far, Ecom Express has not spent any money on fit-outs and other installations, but this may change going forward.

In a recent interaction with Inc42, an analyst at a top brokerage firm observed that Delhivery’s recent struggles were more company-specific than indicative of broader market issues.

“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.

Losses Dampen Market Sentiment, But Ecom Express May Have A Way Out

When it comes to a company’s performance, there is always the proverbial Achilles heel – profitability. Ecom Express is still a loss-making entity, and its net loss stood at INR 255.8 Cr in FY24 on operating revenue of INR 2,609 Cr.

While its top line grew a mere 2% from INR 2,553.9 Cr operating revenue posted in FY23, it narrowed its losses by 67% YoY, a significant improvement. As of now, its operating revenue comes from courier operations, including express parcel delivery and warehousing. However, its efforts to diversify revenue channels and push growth along those lines may witness a better outcome. 

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.   

Take, for instance, the startup’s FY23 exit from Paperfly, a partly-owned subsidiary in Bangladesh. Losses from its continuing operations stood at INR 248.5 Cr in FY24, but such decisive steps underscore a sound approach towards financial discipline. 

Ecom Express also integrated drone technology in May 2024 for last-mile delivery (to deliver beauty, personal care items and medicines) to increase efficiency and reduce transit times. During the development, the startup told Inc42 it would initially deploy drones to deliver beauty products, personal care items and medicines.

“These efforts are not going unnoticed by the investor community, which is now showing increased interest in tech IPOs that demonstrate a clear path to profitability,” said Paliwal.

Overall, the current market sentiment is not in favour of loss-making entities. But a few standout cases, like the recent IPOs of FirstCry and Awfis, prove that the market may warm to such businesses if they offer a unique value proposition and a credible road map to hit profitability.

Ecom Express IPO A Key Event, But Can It Overcome Fundamental Hurdles?

While the startup’s business model, market positioning, historical growth and improving fundamentals indicate possibilities for a positive response in the public market, there are still a few challenges. Charting a consistent path to profitability is one of them.

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.

Incidentally, Ecom Express lowered its operating cost per shipment to INR 39.65 in FY24 from INR 45.4 in the previous fiscal year and INR 47.33 in FY22.

Singh also emphasised that logistics players should improve their service mix to strengthen their position.

“They can charge more for value-added services that require specialised capabilities in areas like reverse pickups, heavy shipments and express deliveries – from 30-minute to same-day/next-day options. So, a better service mix will help them with profitability,” she said, adding that the increasing demand for quick commerce and hyperlocal is an important development in that direction.

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.

Rohan Agarwal, a partner at Redseer Strategy Consultants, also highlighted the likelihood of ups and downs as the public market is still learning about the nitty-gritty of new-age businesses.

“Although the public market has evolved well in the past three years, given the listings of Zomato, Nykaa and others, a lot more awareness is required to understand how these businesses function and their profitability evolves,” he added.

Nevertheless, Ecom Express focusses solely on B2C ecommerce, a business model familiar to most Indians. It will be a more straightforward narrative for investors than BlackBuck, a B2B logistics marketplace specialising in inter-city FTL and preparing for its market debut.

It remains to be seen if Ecom Express can overcome the concerns that dragged Delhivery down – whether the upcoming IPO will be pivotal in shaping the future of B2C ecommerce logistics.

[Edited By Sanghamitra Mandal]