Buy Delhivery Ltd for Target Rs.387 by Elara Capitals
Profitability takes center stage
Delhivery (DELHIVER IN) reported positive PAT for the first time at INR 1.6bn, led by customer addition across segments (largest customer share at 16%), strong growth in the PTL segment, improved network/fleet utilization and operating leverage. FY25 revenue grew 10% YoY, with EBITDA margin up 265bps YoY to 4.2%. PAT margin was 1.8% versus loss earlier. DELHIVER expects: 1) volume growth to continue, led by integration of Ecom Express, market share gain from the unorganized sector, and foray into rapid commerce and 2) further improvement in profitability, led by network utilization and yield optimization. With strong cash balance of INR 40bn, capex intensity reduced to 5% of revenues, the focus is on improving net worth. Maintain Buy with TP unchanged at INR 387.
PTL reports its first double-digit margins: Revenues from the PTL segment grew 24% YoY to INR 5.2bn (24% of sales), led by 19% growth in volume (on customer additions, gain in share from the unorganized sector) and 4% growth in realization (contract of existing clients renegotiated at a higher price, though partially offset by contract with Hindustan Petroleum Corporation at lower realization). This with increased productivity through automation, value engineering and network utilization led to an 870bps YoY expansion in service EBITDA to double-digits at 10.8% (first-time ever). The management expects growth to continue due to superior quality of network, improving fleet utilization and implementation of technology for bag sortation. DELHIVER is targeting long-term segment profitability to be similar to that from the express segment at ~16%.
Express segment – Profitability set to rise: Despite a decline in industry volumes in ecommerce, volume and realization posted slightly positive growth, while segment profitability declined 170bps YoY to 16% due to under-utilization. The proposed acquisition of Ecom Express is expected to add ~130mn shipments (30% of total 430mn shipments in FY24), leading to faster-than-industry growth and better profitability due to improvement in pricing (supply constraints in the industry) and network integration (limited facilities to be retained). The Rapid Commerce business is also ramping up – 18 dark stores currently are set to increase to 50 by the end of the fiscal, with some mature stores handling 350-400 orders per day and set to reach break-even point of 700-800 orders per day in the next six months.
Capex intensity reduced, volume growth to drive utilization, reiterate Buy: Capex, as a percentage of sales, has declined to 5% from 9% in FY19. It is set to reduce further to 3.5-4% in the near-term led by a decline in investment required for automation. Balance sheet is healthy, with cash balance of INR 40bn, of which INR 14bn will be utilized towards the acquisition of Ecom Express and the balance used as capital to grow. We marginally pare estimates by 5% for FY26E and by 4% for FY27E. Maintain Buy with DCF-TP unchanged at INR 387, assuming a WACC of 10%, and a terminal growth of 6%. We introduce FY28 estimates and expect FY25-28E earnings CAGR of 64%
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