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Express segment growth slows

DELHIVERY (DELHIVER IN) 9M revenue growth has been mixed bag with the Part Truck Load (PTL) segment, up 25% YoY, while the express segment up by a mere 5% YoY. While both segments saw volume and realization growth, PTL volume growth surpassed with +18% YoY while express at 1.7% YoY. eCommerce demand slowed, competition from qCommerce and insourcing from platforms dragged the growth rates in express. Segment margin at 3% for PTL and 16% for express are set to rise gradually, led by pickup in utilization via line-haul optimization. Volume growth remains crucial amid a challenging macro environment; we expect revenue CAGR of 10% (from 16%) during FY24-27E and lower our TP to INR 387 based on a DCF method. We reiterate Buy

Margin miss on high cost during festival and commissioning of Bengaluru facility: Q3 revenue was in line at INR 23.7bn, up 8% YoY, led by PTL, up 22% YoY, and supply chain, up 28% YoY, while express parcel segment (63% of revenue) grew moderately at 3% YoY as volume cooled off post festival bump-up in October. EBITDA margin of 4.3%, down 70bp, missed our estimates of 5.5%, due to the rise in fleet hiring cost, up INR 500mn, in key metro cities, due to shortages, the commissioning of Bengaluru hub and festival demand, led to the rise in freight cost. Management targets to enter in fixed price contracts for fleet vs spot contract for better cost management. Net profit stood at INR 250mn, up 1.1x YoY, aided by lower depreciation (change in method in Q1FY25).

Focus on PTL revenue growth: PTL revenue grew 22% YoY in Q3 and management targets higher growth of 25-30% on account of: 1) increase yield, 2) improving utilization of tractor-trailer network due to heavier loads, 3) target SME & retail clients to hike utilization of reverse line haul, 4) expand reseller program (a franchise network), and 5) partnership with Hindustan Petroleum Corporation (HPCL) for lubricants distribution. Express revenue grew by a mere 3% in Q3 on slow growth in eCommerce and increased volume insourcing by platforms, such as Meesho. Management expects insourcing has reached optimal levels for Valmo (Meesho’s in-house app) and is unlikely to impact third-party volumes further. It expects ultra-low pricing by such firms as unsustainable in the long term as they continue to face losses and will have funding constraints. Express margin is likely to remain in the range of 17-20% (Q3: 16%).

Rapid commerce opportunity emerging, but not huge: The company has entered rapid commerce delivery with a pilot presence at Bengaluru, Chennai, and Hyderabad. In the initial 45 days, it onboarded two customers and is in process of adding another 15. It clocked in 500 orders/day and expects to reach 700-800 in the near term, leading to break-even levels. Plans are underway to add 50 stores in the Top 8 cities and revenue of INR 0.8-1bn in the near term with margin in the range of 17-20%

Reiterate Buy with a lower TP of INR 387: We lower our growth expectations for express and PTL segments, leading to a lower TP to INR 387 from INR 570 on a DCF valuation, assuming a WACC of 11% (unchanged), and terminal growth of 7% (unchanged), implies 2.6x FY27E EV/sales. We expect a revenue CAGR of 10% and EBITDA CAGR of 88% during FY24-27E. In near term, earnings for FY26E/27E raised by 16% and 7% due to lower depreciation. We reiterate Buy.

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