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Despite inflationary pressures from fuel and revision in minimum wages, Delhivery’s 2Q operational performance surpassed our/street expectations, as EBITDA margins expanded ~180bps qoq to 6.7%. Benefits of industry consolidation in B2C and a strengthening leadership position in PTL have started yielding results, as realization grew 4%/6% qoq on the back of price hikes undertaken to pass higher fuel/wage inflation, as well as proactive contract repricing without impeding volume trajectory. The management appeared confident of maintaining service EBITDA margins of ~17% in B2C, while targeting margin expansion in PTL, underpinned by automation-led operating efficiencies, disciplined demand shaping, and a focus on profitable volume retention. New initiatives (Delhivery Local, International, Financial services) provide substantial long-term optionality; they would, however, lead to a near-term drag on profitability. We, thus, anticipate margin recovery to remain gradual. Factoring in the above, we cut our FY28/FY29E EBITDA margins by 20/60bps and our Sep-27E TP by ~5% to Rs500 from Rs525 (DCF methodology); retain BUY.

2Q performance – better than feared

Revenue grew 20% yoy to Rs30.7bn in 2Q, driven by the B2C Express/PTL segments (+22/23% yoy). B2C Express growth was mainly driven by parcel volume growth of 32% yoy, on strong industry tailwinds, while PTL segment growth was driven by 14/8% growth in tonnage/yield. Service EBITDA margin expanded ~120bps yoy to 14.4%, driven by price hikes undertaken to pass through fuel/wage inflation. Yields further improved on the back of retention of profitable loads, as well as proactive pricing revisions. Reported EBITDA margin thereby expanded 404bps to 6.7%. Reported PAT came in at Rs406mn (2QFY26: loss of Rs504mn). Working capital days improved to 5 (FY26: 11). Net cash (as of Sep-26) stood at Rs46bn.

Growth trajectory durable, margins remain key monitorable; retain BUY While commentary from a key e-commerce customer remains an overhang amid demand headwinds from higher insourcing, we believe Delhivery’s integrated & diversified logistics network can sustain volume trajectory. The management’s confidence in sustaining PTL volume trajectory in the high teens, given its developing TAM (transition from slow PTL to express PTL), lends comfort to sustained profitable growth in this segment. Delhivery's investments in other allied businesses—Local, International, and Financial services—are likely to emerge as strong growth vectors in the future (Local/International current ARR tracking at Rs2bn/1.5bn). However, given the current inflationary environment, margin expansion is likely to be gradual, in our view. Looking beyond the transitory headwinds, we remain constructive on the company's long-term profitability prospects, as the D2C/SME share improves in B2C, along with market share gains in the PTL segment. A strong balance sheet allows Delhivery to invest in new growth vectors and diversify beyond the express business, providing a more durable structural advantage vs peers. Key risks: macro uncertainties leading to labor shortage, a slowdown in the e-commerce industry, and increased insourcing by e-commerce platforms.

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