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Delhivery Limited

Rating - Avoid

* Delhivery Limited (“Delhivery”) was incorporated on June 22, 2011. Delhivery is the largest and fastest growing fully-integrated logistics services player in India by revenue as of Fiscal 2021.

* Delhivery provided supply chain solutions to a diverse base of 23,113 Active Customers such as e-commerce marketplaces, direct-to-consumer e-tailers and enterprises and SMEs across several verticals.

* Their in-house logistics technology stack is built to meet the dynamic needs of modern supply chains. They have over 80 applications through which they provide various services.

* Delhivery collect, structure, store and process vast amounts of transaction and environmental data to guide real-time operational decision making.

* Delhivery operated 21 fully and semi-automated sortation centres and 82 gateways across India (excluding Spoton) as of December 31, 2021.

* They had a Rated Automated Sort Capacity of 3.70 million shipments per day as of December 31, 2021.

* Delhivery operates a pan-India network and provide their services in 17,488 postal index number (“PIN”) codes, as of December 31, 2021. Outlook & Valuation: The company has a good track record of execution built on its proprietary technology and has scaled up significantly since its incorporation in 2011 to emerge as the largest fully-integrated logistics player in the country. The runway of opportunity also appears good given India’s longterm growth prospects and the crucial role logistics plays when it comes to commerce. Another point to note is that, in India the share of organized players is much lower compared to developed countries.

It reported revenue from operations of ₹4,811 crores for the nine months ended December 21. Annualizing this implies very strong FY19-22 revenue CAGR of around 57 per cent. However, the high growth of the company is due to the acquisitions made, organic growth has been slower in comparison to overall growth. The company does not have a past track-record of profitability given focus on growth. While it has reached near break-even on an adjusted EBITDA basis for nine month FY22 (adjusted EBITDA margin of negative 0.72%), the profitability at net profit levels is yet to be seen and depends on a lot of variables in the future. Investors need to note that logistics business is a low-margin business and the scale of operation determines the profitability due to operating leverage.

Nevertheless, the current market environment is not conducive for aggressive risk taking when it comes to unprofitable companies. The issue is priced at a Price to Sales ratio of 5.4 (based on annualized revenues of 9 months ending as on December, 2021). We suggest investors to enter the company post listing after analyzing how the business evolves in terms of revenue growth and profitability. Thus, we recommend to “Avoid” the issue.

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