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ROIC to hit double-digit mark in FY26

Delhivery (DELHIVER IN) has built an integrated logistics network, advanced technology stack (automation, routing & demand forecast) and service diversification since FY11 inception. In FY24, the company turned EBITDA-positive from Spoton stabilization, better route density, and line-haul efficiency, aiding in better fixed cost absorption. In FY25, DELHIVER turned PATpositive, driven by continued volume growth, customer additions and change in useful life of assets, reducing depreciation. For FY26, we expect double-digit adjusted pre-tax ROIC on a consolidated basis and on core transport (express parcel [EP] + part truck load [PTL]), fueled by Ecom Express integration, service EBITDA margin improvement, lower corporate overhead, lean working capital and capex peak. With robust demand and declining losses in new businesses, such as Delhivery Direct, Rapid and Financial services, we expect FY28E consolidated ROIC of 13% (vs 4% in FY25) and transport ROIC of 19% (vs 9% in FY25). We reiterate Buy with a higher TP of INR 620 based on a SOTP method

Double-digit adjusted ROIC from FY26: Adjusted ROIC (excluding cash & leased assets and addition of ESOP cost while deducting actual rent paid on leases) for consol entity is set to rise 600bp YoY to 10% in FY26E, led by robust growth in service EBITDA margin, fall in corporate cost aiding numerator while compression in net working capital, lower tangible capex aiding denominator. 9M performance was led by: 1) stable margin in EP at 16% post integration of Ecom Express, 2) disproportionate expansion in PTL margin to 10%, led by structural operating leverage, driven by higher utilization & tech-led cost efficiency, leading to lower cost per tonne, and 3) supply chain (SCS) margin scaled up to 11%, led by large enterprise contract wins and yield optimization.

Core transport ROIC even better: The transport segment comprises the EP + PTL segment, which forms 85% of 9MFY26 revenue with an adjusted EBITDA margin of ~7% in FY26 (vs consol entity at 4%). Assuming pro-rata capital employed, we expect FY26 transport segment ROIC of 16.1%, up 660bp YoY from 9.5% in FY25E. We expect an EP revenue CAGR of 18% during FY25-28E, led by 21% volume growth and 3% decline in realization. We expect a PTL revenue CAGR of 17% during FY25-28E, driven by 15% volume growth and 2% realization growth. Concerted initiatives have bolstered performance along with adoption of LNG trucks, tractor trains, improved throughput in under-utilized lanes, and consolidation of operations.

Strong demand outlook; Q4 likely to be healthy: With rising expectations from customers in terms of quality, speed and accuracy, the company is aligning to target accelerated client acquisition, along with wallet share gains driving scale-led benefits amid dynamic pricing environment. H1 is usually investment-heavy (capacity and cost) whereas H2 reflects benefits in profitability and free cashflow, given the seasonality profile.

Reiterate Buy with a higher TP of INR 620: We retain our volume and pricing estimates; however, lower other income (post payout for acquisition) and higher depreciation (on Ecom Express addition and rise in scale of business) has led us to cut our adjusted PAT by 15% for FY26E, 19% for FY27E and 5% for FY28E. We reiterate Buy with a higher SOTP-based TP of INR 620 from INR 593, owing to higher segment services EBITDA estimates. We value on unchanged EV/EBITDA of 25x to EP, 15x to PTL, 7x to SCS and others at 1.5x of sales.

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