Buy Delhivery Ltd for the Target Rs 525 by Emkay Global Financial Services Ltd
Delhivery delivered a muted 1QFY27, with EBITDA declining 4% yoy (-28%/- 23% vs our/street estimates), despite revenue growing 28% yoy, primarily due to the impact of fuel price hikes and the revision of minimum wages under the wage code. Excluding fuel cost hikes (Rs350mn impact in 1Q, the pass-through of which should happen 2Q onward) and Ecom integration costs (non-recurring in nature), reported EBITDA margin would have been largely in line with our estimate (6.6% vs our estimate of 6.8%). The management’s guidance of continued growth in the transportation segment (B2C volume growth guidance of 20-30% and PTL 18-22%) lends comfort on Delhivery's growth levers sustaining. The management appeared confident of maintaining service EBITDA margins of ~16-18% in B2C and 100-150bps improvement in the PTL segment, as operating leverage and fuel pass-through mechanisms kick in going forward. We, however, expect margin recovery to be gradual, given the current inflationary environment and impending wage regulations. New initiatives, though remaining long-term levers, would lead to a further drag on profitability in FY27. Factoring in the 1Q miss, we cut FY27/FY28E EBITDA by 12/6% and our Jun-27E TP by 9% to Rs525 from Rs575 (DCF methodology); retain BUY
Muted operating performance
Revenue grew 28% yoy to Rs29.3bn in 1Q, driven by the B2C Express (up 33% yoy) and PTL (up 25% yoy) segments. B2C Express growth was mainly driven by parcel volume growth of 55% yoy, on industry consolidation/increase in outsourcing, while PTL segment growth was driven by 18/5% growth in tonnage/yield. Service EBITDA margin remained flat yoy at 13.0%, as, despite higher volume growth, cost pressures owing to fuel price hikes and implementation of minimum wages across four states offset the benefits of operating leverage. Reported EBITDA margin thereby narrowed 164bps to 4.9% contractual manpower cost increased 32% yoy to Rs371mn, while other expenses grew 34% yoy to Rs2.1bn. Reported PAT came in at Rs319mn (-65% yoy). Working capital days improved to 9 (FY26: 11). Net cash (as of Jun-26) stood at Rs47bn
Outlook and risks
Delhivery’s integrated logistics network fortified by the e-com acquisition should disproportionately benefit from ongoing industry consolidation. Additionally, Delhivery's investments in other allied businesses Local, Direct, and Rapid are likely to emerge as strong growth vectors in the future (Local's current ARR tracking at Rs1.5bn). However, given the current inflationary environment, margins are likely to remain under pressure in the near term. Looking beyond the transitory headwinds, we remain constructive on the company's profitability prospects over the long term, as the D2C/SME share improves in B2C, along with market share gains in the PTL segment. A strong balance sheet (net cash: Rs47bn as of Jun-26) 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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