Buy Delhivery Ltd for the Target Rs.510 By Emkay Global Financial Services Ltd
Q2FY26 on expected lines; growth and margin levers intact
Delhivery’s Q2FY26 results (excluding Ecom) were in line with our revenue/EBITDA estimates. With network investments in core transportation businesses (for the festive season) behind us, seasonality would aid peak profitability in H2FY26, coupled with the lower-than-anticipated integration cost (~Rs2bn vs Rs3bn earlier) boosting PAT in FY26, in our view. Per the management, B2C volumes grew 15% YoY (organically), suggesting a pause in insourcing by Meesho, while PTL continued to gain market share amid a tepid environment (revenue growth of 15% YoY). We nudge up EBITDA estimates for FY27/28 by 6%/8%, respectively, as we anticipate benefits of consolidation in the B2C industry and sustained market share gains in PTL, improving the margin trajectory. We maintain BUY and revise up our Sep-26E TP to Rs510 (by 13%, from Rs450; DCF methodology). Additionally, Delhivery’s foray into new products like rapid commerce, Delhivery Direct, and financial services could create adjacent growth vectors in the future and further drive revenue diversification.
Balanced quarter; integration risks behind
Revenue grew 17% YoY to Rs25.6bn, driven by the Express parcel segment (up 24% YoY) in Q2FY26. Express business growth was driven mainly by parcel volume growth of 32% YoY, while being partially offset by a 7% YoY decline in realization per parcel. PTL revenue was up 15% YoY, which was muted, given the GST rate-cut impact; volumes grew 12% YoY, along with realization-per-ton increasing 3% YoY. SCS revenue declined 14% YoY, while margins expanded significantly to 12.8% (Q2FY25: -4.4%) as the company adopted a more calibrated approach for the segment. EBITDA margin came in at 2.7%. Excluding Ecom’s integration impact, EBITDA was in line with our estimate. The management anticipates overall integration costs to be ~Rs2bn (vs Rs3bn guided earlier), with Rs0.9bn incurred in Q2. PAT declined to a loss of Rs505mn, with declines in other income (-23% YoY) owing to lower cash balances and one-time integration costs on account of Ecom’s acquisition. Net cash stood at Rs33.8bn (vs Rs50.0bn in Mar-25).
Outlook and risks.
Early signs of benefits from the industry’s consolidation seem visible as the B2C segment sustained mid-teen volume growth for another quarter. We expect pricing discipline to follow next; this would vastly improve profitability in the B2C industry. The PTL segment continues to go from strength to strength, with the management confident of maintaining the momentum ahead. Improving profitability in supply-chain services, along with the ability to capture adjacent opportunities in logistics (rapid commerce and on-demand intra city trucking) should reinforce Delhivery’s superior network capabilities and aid revenue diversification. The robust net-cash balance sheet, improving industry dynamics (B2C), and increasing TAM (foray into financial services, leveraging the existing vendor base) should support valuations, in our view. Key risks: Slowdown in e-commerce due to quick commerce, increased insourcing by marketplaces, and pricing pressures in a fragmented market.
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