Buy Delhivery Ltd For Target Rs. 380 By JM Financial Services
Strong margin revival; Ecom Express transaction closure awaited
Delhivery reported INR 21.9bn (+5.6% YoY) revenue as the industry headwinds were little unchanged from the previous quarter. While the revenue missed JMFe by 3.5%, normalisation in contractual manpower and vehicle rental expenses helped the company beat JMFe Adj. EBITDAM by 130bps to reach 2.5% (Adj. EBITDA of INR 554mn). Also, the company reported the first year with all four quarters being PAT positive. Nonetheless, the key trigger remains the impending closure of Ecom Express acquisition and the resulting change in express parcel industry structure – a scaled 3PL player not just makes better service EBITDA but also provides the cheapest cost to its customers. While we will bake-in the exact impact of this acquisition once the transaction closes, our rough calculations suggest it can result in c.30% upgrade to JMFe FY27 Adj. EBITDA of INR 7.9bn. We reiterate ‘BUY’ with an increased Mar’26 TP of INR 380 and believe the changed industry landscape can result in a sustained uptick for Delhivery.
* Express Parcel segment (EPS) remains slow with headwinds sustained: EPS revenue grew 3.2% YoY to INR 12.6bn (sequential dip of 15.6% due to seasonality), primarily driven by realisation growth of 2.7% YoY (-1.8% QoQ), while shipments volume were muted at 177mn (vs. 176mn/206mn in 4QFY24/3QFY25). The subdued growth was attributable to adverse pricing actions by competitors over the past year, overall consumption softness along with rising quick commerce and insourcing at Meesho. We expect these headwinds to subside gradually over the coming quarters as Meesho has limited headroom for incremental insourcing and QC players have started taking a more toned down approach. Management expects growth to revert in FY26 with the acquisition of Ecom Express (expected retention of 30%+ volumes), as positive volume impact is already visible in April and May. Segmental service EBITDA margin stood at 15.9% (vs. 17.6%/15.6% in 4QFY24/3QFY25), however, it is expected to revert to a more normalised trajectory and reach 17-18% in the medium-term as volume recovers and operating leverage kicks-in.
* Delhivery continues to outpace PTL industry growth: PTL volume growth was robust at 19.3% YoY (+11.1% QoQ), while realisations also improved 4.0% YoY (+0.7% QoQ), leading to growth in revenue of 24.0% YoY (+11.9% QoQ). The segment delivered sharp uptick in service EBITDA margin at 10.8% (vs. 2.2%/3.9% in 4QFY24/3QFY25), primarily driven by a) yield improvement; b) investments in automation; c) improving fleet utilisation through software improvements; and d) operating leverage. Management noted that improving capacity utilisation of the well established integrated network and densification of tractor-trailer network will drive a continued improvement in service EBITDA margin, with long-term steady state margins potentially similar to that in EPS. Furthermore, c.80% of PTL industry still remains unorganised, which could drive sustained growth for the company in this segment.
* TL and Supply Chain Services (SCS) segment disappoint: TL segment revenue declined 12.9%/5.5% YoY/QoQ to INR 1.5bn, a miss on JMFe by 20%. Supply Chain Services segment reported 1.5% YoY decline (+3.1% QoQ), with revenue at ~INR 2.3bn, a miss on JMFe by 16%. Despite topline miss, service EBITDA margin for SCS segment stood at 5.2% (-6.0%/+2.3% in 4QFY24/3QFY25), an increase of 290bps QoQ.
* Maintain ‘BUY’, Mar’26 TP increased to INR 380: We cut our revenue estimates by 1% over FY26-29E, mainly due to topline miss. Adj. EBITDA margin estimates rise by 15- 60bps over FY27-29E with the company exercising strong cost control. Further, lower capex requirement reduces depreciation expenses, while carried forward losses result in lower tax rate, thereby increasing our EPS estimates by 4-13% over FY26-29E. Our DCFbased valuation suggests Mar’26 TP of INR 380, implying 31.4x FY27E Adj. EBITDA. We maintain ‘BUY’. However, it is important to note that these numbers could see strong revisions once Ecom Express acquisition closes with FY27E Adj. EBITDA expected to rise by c.30%. Key risks: Quick commerce growing at the cost of e-commerce and company’s strategic acquisition of Ecom Express failing to deliver as per expectations.
* Ecom Express integration to enable c.30% upgrade in FY27 Adj. EBITDA estimate: The recently announced acquisition of Ecom Express is expected to be a significantly positive trigger as it will enable Delhivery to gain incremental scale. While Ecom Express has been the 2nd largest EPS 3PL player, Delhivery management has assumed conservatively to suggest only 30% volume retention. This assumption implies complete loss of Meesho volumes as well as cannibalisation with some larger customers. We assume 35% volume retention as Meesho is unlikely to do 100% insourcing and also expect 10% uptick in realisation as mix of lower yielding Meesho volumes dips sharply. Furthermore, the Delhivery-Ecom combine would also see higher service EBITDA thanks to pricing disciple emerging as well as substantial operating leverage. With minimal need for incremental corporate overheads, we expect this acquisition to add c. INR 2.5bn to Delhivery’s FY27E Adj. EBITDA of INR 7.9bn, resulting in 31% upgrade.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
