The Curious Case of Various Delhivery Brokerage Opinions – Explained

  • While Credit Suisse gave Delhivery an “outperform” rating, IIFL Securities advised investors to sell the stock saying it was walking a tightrope.
  • On June 2, Credit Suisse issued a bullish view on the stock and, at the same time, IIFL Securities highlighted Delhivery’s poor performance and recommended investors sell the stock.
  • Delhivery’s track record in the stock market shows that it is clearly struggling to gain investor confidence.

At this point, logistics company Delhivery can go either way – moving towards profitability or getting bogged down in more losses or taking too long to deliver on its promise. Additionally, two major brokerages have given contrasting opinions on how his future will unfold.

While Credit Suisse gave it an “outperform” rating, IIFL Securities advised investors to sell the stock, saying it’s akin to walking a tightrope.

Strong presence in the e-commerce industry
Delhivery holds a strong 25% market share in the e-commerce industry with top tier clients like Amazon, Meesho, Flipkart and others alike. Its asset-light model combined with technology and automation shows that it has attractive growth prospects ahead of it.

While this gives it an edge and a first mover advantage in a growing express parcel services market, 44% of its business comes from five highly dependent and concentrated customers.

“The company doubled its parcel volumes in FY22; gain strong market share of 24-25% in Q3 FY22 in all e-commerce parcel volumes and nearly 60-65% in ex-captive. Delhivery has a common mesh network and various services generate virtuous synergies for all others. Its scalable internal technology platform supports all of its operations,” Credit Suisse said.

It also played a role in the B2B logistics space by acquiring Spoton with express delivery, supply chain and cross-border offerings. This expansion was financed through various rounds of fund infusions.

On the other hand, IIFL believes that Delhivery’s focus on automation, scale and growth vigor is good, but may face execution challenges. He believes that the risk-reward ratio is unfavorable and therefore investors should wait for a better entry point.

“At current valuations, the stock appears to embed seamless strategy execution to integrate complex businesses, contain costs, pass scale benefits to consumers while becoming profitable,” analysts said. from IIFL Securities in their first report on the company.

Internet company or logistics company?
Credit Suisse, however, supports its valuation and estimates that the share price will rise by 26% in one year. He believes that Delhivery is destined to achieve profitability as the sector is ripe to achieve profitability. The company has strengthened its accessibility, infrastructure and fulfillment process over the years, especially after the acquisition of Spoton.

“We prefer Delhivery to other Internet peers, with no cost of customer acquisition, with diversified growth – e-commerce and broader logistics; and a cheaper valuation for the same growth game,” Credit Suisse said.

The IIFL, however, compares Delhivery to other logistics players. Other players in the niche logistics sector, he says, compete on differentiated services, but Delhivery only competes on price – and its razor-thin margins could affect its profitability in the future.

“With around 85% of overall costs being variable, it remains to be seen how Delhivery intends to improve its operational efficiency, achieve leverage, pass most of these gains on to consumers, while recording a significant Ebitda margin in the absence of any significant price increase,” says the IIFL.

Delhivery also pegs its valuation to other consumer tech companies instead of logistics players like Blue Dart.

“If you think of us as a consumer tech company, we’re vastly undervalued. Because if you look at all these consumer tech companies listed recently, their revenue isn’t growing as much as ours. Our revenue is 4 times those of these businesses; we are growing at a 65% rate along with operational profitability,” Delhivery Chief Commercial Officer Sandeep Barasia said in an interview with Mint.

However, even those willing to treat it as a consumer tech company also seem to have reservations. It all depends on the sector to which it belongs and the leeway that can be granted in relation to the fact that it is still in deficit.

Delhivery’s losses fell by 43% to ₹1,011 crore in FY22, compared to three years ago, but some believe its losses do not justify its valuations.

“From a fundamental perspective, Delhivery is still a loss-making business with no real clear path to show profitability. numbers and fundamentals don’t really justify the price we’re looking at,” said Neha Khanna, director at Business Insider India.

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