Buy Delhivery Ltd for the Target Rs. 525 by Emkay Global Financial Services Ltd
Delhivery delivered strong Q4FY26 numbers, with revenue/EBITDA growing 30/80% YoY, ahead of our estimates by 2%/12% — reaffirming the structural advantage of its integrated network model in absorbing volume volatility without compromising on profitability. The core Transport segment (B2C+PTL) reported service EBITDA margin of 17.5%, up by ~300bps YoY. With PTL service margin at 13.4% and management guidance of steady-state 17-18% margin, we expect service EBITDA margin to expand further. PTL topline grew 20% YoY in Q4, reflecting accelerating market-share gains, with the management confident of sustaining >20% annual volume growth. Additionally, the management gave guidance for ecommerce industry growth of 15–20%, with Express likely to grow in tandem, supported by Delhivery's cost advantages, sustained consolidation tailwinds, and a pause in insourcing by Meesho. The improving margin trajectory of the Transport/SCS segments is likely to offset any investment in new businesses (FY27E capex: Rs1.3-1.6bn). Factoring in the beat in Q4 results, we raise FY28E EBITDA by 2% and the Mar-27E TP by 5% to Rs525 from Rs500 (DCF methodology); retain BUY.
Strong operating performance, with improving profitability in PTL and SCS
Revenue grew 30% YoY to Rs28.5bn in Q4, driven by the B2C Express (up 46% YoY) and PTL (up 20% YoY) segments. B2C Express business growth was mainly driven by parcel volume growth of 73% YoY, on industry consolidation/pause in insourcing, while marketshare gains continued in PTL (volume up 20%). SCS revenue fell 19% YoY, while service EBITDA margin significantly rose to 11.1% (Q4FY25: 5.4%) as the company focused on high-margin contracts. Owing to operating leverage, reported EBITDA margin expanded by 208bps to 7.5%. Reported PAT came in at Rs724mn (flat YoY). Further, the company turned FCF-positive in FY26 (Rs890mn), achieving ahead of the original guidance. The number of working capital days improved to 11 (FY25: 22). Net cash (as of Mar-26) stood at Rs42bn.
Outlook and risks
Delhivery’s market leadership—fortified by the e-com acquisition and integrated logistics network offering the lowest cost proposition—should disproportionately benefit from the industry consolidation. Any reduction in insourcing of volumes by the Big-3 Ecom platforms, in addition to the expected industry volume growth of 15-20%, is likely to be a huge tailwind, given the strong service value proposition offered by 3PL operators. Management confidence on maintaining strong momentum in the PTL segment, with improving SCS profitability, augurs well not only for sustaining overall profitability but also for absorbing any external shocks that remain elusive to other B2C LSPs. Additionally, leveraging its superior tech-enabled network, Delhivery's investments in other allied services—Direct and Rapid businesses—are likely to diversify its business by capturing adjacent opportunities and may emerge as strong growth vectors in the future. The company’s robust balance sheet (FY26: Rs42bn), improving profitability across segments, and improving industry structure (B2C) are likely to support valuations (FY28 EV/EBITDA of 21x at CMP). Key risks: Slowdown in Ecommerce due to faster adoption of quick commerce; pricing pressure in a fragmented market.
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