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Leading in the Express lane

We analyzed Delhivery’s DRHP to understand its business model, opportunity in the various industry segments of Express Parcel Services, part truck load (PTL), truckload (TL), supply chain solutions (SCM), etc., and the competitive landscape. Following are the key takeaways:

* The largest player with a fully integrated Logistics services portfolio: Delhivery is the largest and fastest growing fully-integrated Logistics services player in India by revenue as of FY21. It provides a full-range of Logistics services, including delivery of Express Parcel and heavy goods, PTL freight, TL freight, Warehousing, supply chain solutions, Cross-border Express, freight services, and supply chain software. It also offers value added services such as e-commerce return services, payment collection and processing, installation and assembly services, and fraud detection. The wide range of services has reduced its dependencies on any single business line, thus reducing the effects of cyclicality in the customers’ businesses on its operations. This also leads to a higher share of wallet and customer retention.

Technology and automation at its core: Delhivery has proprietary technology systems that enable it to offer integrated Logistics services to a wide variety of customers. Its technology stack consists of over 80 applications that encompass all supply chain processes including order management, warehouse management, transportation management, financial transactions such as billing and remittance, tracking and supply chain analytics. It uses machine learning, artificial intelligence and operations research to build institutional intelligence, automation and dynamic optimization capabilities that enables it to solve several complex operational problems like maximizing trip utilization, forecasting delays, network planning, etc.

Robust industry opportunity: The Indian Logistics sector offers a large addressable opportunity, with a direct spend of USD216b in FY20 and is expected to grow at 9% CAGR to USD365b by FY26. The Express Parcel Service segment, which is mostly catered to by the organized players, is expected to grow at 28-32% CAGR, primarily driven by the e-commerce industry, which grew by 31% over FY18-20 and is estimated to grow by 30-33% over FY20-26. Growth was mainly led by: a) rising mid-income group, b) availability of low-cost smartphones and reliable internet, and c) emergence of new markets in the form of Tier II towns. The PTL/SCM segments are expected to grow at 13%/9% CAGR over FY20-26, with business preferences shifting to organized from unorganized players.

Shift to organized players to aid companies like Delhivery: Organized players accounted for ~3.5% of the Logistics market in FY20 and are expected to grow at 35% CAGR over FY20-26, taking their share to 12.5-15% by FY26, driven by ecommerce penetration and evolving business models such as direct-toconsumer (D2C), omnichannel, direct-to-retail, etc. This shift has gathered pace with the rollout of GST, which increased demand for national, integrated Supply Chain Service providers with integrated warehousing and Transportation models, that allow customers to scale operations at lower fixed costs, while creating opportunities for optimizing footprints and capacity utilization, lesser inventory, and faster and cheaper fulfillment.

Asset light business model: Delhivery has an asset light business model, which helps it to scale up volumes rapidly at lower fixed costs and with greater flexibility. Network partners play a significant role in its business operations such as pickup and mid-mile (trucking and air) and last-mile delivery. It has partnered with over 6,000 vendors and network partners to provide pickup, delivery services, and truckload capacity. It operates over 12.42m sq. ft. of leased infrastructure and the majority of its vehicles are leased.

Diverse customer base: Delhivery serves a diverse base of 21,342 active customers across e-commerce, Consumer Durables, Electronics, Lifestyle, FMCG, Industrial goods, Automotive, Healthcare, and Retail. Its customer base includes most of the key e-commerce players in India and over 675 D2C brands. Its superior service quality, vast reach, efficiency, and deep integration with customers’ ERP systems and business processes have led to customer stickiness.

Unique network design: Delhivery operates a dense dynamic mesh network, making it efficient, fast, and agile in responding to changes in volumes, shipment profiles, and environmental conditions. The mesh structure allows it to reduce overall touchpoints in the shipment’s journey, thus reducing handling and improving precision. Its vast infrastructure network includes 124 gateways, 20 automated sorting centers, 83 fulfillment centers, 35 collection points, 24 returns processing centers, 249 service centers, 120 intermediate processing centers, and 2,235 direct delivery centers. It operates 5.39m sq. ft. of space spread across 71 warehouses. Its nationwide infrastructure network helps it to service 17,045 pin codes.

Key risks: Some of the key risks that are material to the operating model of Delhivery include: a) its heavy reliance on e-commerce, despite diversifying into other industry verticals, b) dependency on network partners and other third parties for Transportation vehicles and manpower, c) lower barriers to entry in many of the segments in which it operates, which has increased competition from several organized and unorganized players, and d) dependency on certain large customers who contribute significantly to its business.

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