Buy Delhivery Ltd for the Target Rs. 570 by Motilal Oswal Financial Services Ltd
Consolidation-driven growth to fuel earnings; outsourcing to 3PL players set to increase
* Delhivery’s express segment recorded a strong 43% YoY volume growth in 3QFY26, driven by festive demand and GST-led consumption; notably, average shipment weight declined ~26% YoY, reflecting a sharp surge in small parcels. The surge was also propelled by increased outsourcing from e-commerce majors. Overall, in the Express logistics segment, the company expects industry consolidation to continue, with cash-burning players likely to exit or rationalize operations, leading to volume redistribution toward stronger, well-capitalized operators.
* Meesho, through its in-house logistics arm Valmo, has aggressively scaled insourcing, from a negligible ~2% in FY23 to ~60% by 1HFY26. This sharp shift materially impacted third-party logistics (3PL) players. Going forward, we expect Meesho’s insourcing to stabilize at ~65-70%, as the company strikes an optimal balance between in-house capabilities and outsourced logistics. Importantly, 3PL partners will continue to play a critical role in enabling pan-India reach, managing infrastructure intensity, and handling peak demand variability, making them structurally indispensable despite increased insourcing by large platforms. We expect volume momentum to remain healthy in 4QFY26, supported by increased outsourcing to 3PL and underlying strength in e-commerce-induced demand.
* The PTL market is also undergoing structural redesign, as customers increasingly shift toward faster, more reliable express PTL offerings from organized players, moving away from traditional economy models characterized by longer transit times and limited service assurance. We expect the company to continue gaining market share and growth well above the industry growth over the next few years, driven by the scale of operations, cost efficiency, and a pan-India presence.
* Looking ahead, we estimate the Express segment revenue to clock a 16% CAGR over FY25–28, aided by healthy e-commerce volumes and industry consolidation, whereas margin expansion is likely to be driven by operating leverage and favorable product mix. The PTL segment offers significant headroom, with organized players handling less than 25% of industry volumes; we project a 17% revenue CAGR over FY25–28, led by SME and retail expansion, yield improvement, and increasing adoption of value-added services. Overall, we expect the company to report a sales/EBITDA/APAT CAGR of 14%/44%/ 52% over FY25-28. We reiterate our BUY rating with a DCF-based TP of INR570.
Strategic inorganic expansion to strengthen market leadership and fuel network advantage
* The INR14b acquisition of Ecom Express (completed in Jul’25) consolidates Delhivery’s leadership in express parcel logistics and adds a complementary rural network, boosting its reach and customer base. This integration is likely to drive network density gains, footprint rationalization, and cost synergies.
* With rural and Tier 2-4 cities forming a major share of e-commerce volumes, the acquisition deepens Delhivery’s competitive moat against peers. The combined entity is well-positioned to gain market share as 3PL players benefit from rising cost pressures on captive logistics arms and industry-wide pricing normalization.
* The company remains open to pursuing inorganic growth opportunities, subject to reasonable valuations, as it believes it has the capability to absorb incremental revenues efficiently and scale them at relatively higher margins.
Strong momentum in Express and PTL underpins earnings visibility
* The express segment continues to witness robust growth, supported by ongoing industry consolidation and rising shipment volumes. Service EBITDA margins are improving, aided by operating leverage and a favorable low-weight product mix. We project a 16% revenue CAGR in the express segment over FY25–28, underpinned by strong e-commerce volume growth during the same period.
* The PTL segment remains a fragmented market, with organized players handling less than 25% of the volume. Following the Spoton integration, Delhivery has demonstrated consistent outperformance through wide geographical coverage, faster turnaround times, and tech-driven process optimization. We project a 17% CAGR in PTL revenue over FY25–28, underpinned by SME and retail segment expansion, yield improvement, and the adoption of value-added services.
* The Supply Chain Services (SCS) segment is scaling profitably by exiting unprofitable contracts while benefiting from the increasing formalization of warehousing, GST-led network redesign, and demand for integrated multilocation solutions like the ‘Prime’ service.
Margin expansion inevitable in the core business
* We expect Delhivery’s EBITDA margin to expand to 8.5% in FY28 from 4.2% in FY25, supported by operating leverage, improved asset utilization, and technology integration across the value chain. Management expects PTL’s service EBITDA margin to reach 16–18% in the next 2-3 years (from ~11% in 3QFY26), while the express parcel service’s EBITDA margin is likely to be sustained at ~18% (vs. ~18% in 3QFY26) and above due to network optimization.
* Capital intensity has been moderating as the major network buildout nears completion. Steady-state capex is expected to decline to ~4–5% of revenue by FY28. A strong balance sheet with negligible debt offers significant headroom for strategic capex and acquisitions.
Valuation and view
* Delhivery remains well-positioned for future growth, driven by strong momentum in its core transportation businesses and a disciplined focus on profitability. With steady volume growth and healthy service EBITDA margins in both the Express Parcel and PTL segments, the company is well-placed to sustain margin strength going ahead.
* The integration of Ecom Express is set to enhance network efficiency and reduce capital intensity, while new services such as Delhivery Direct and Rapid offer longterm growth potential in on-demand and time-sensitive logistics.
* We expect the company to report a sales/EBITDA/APAT CAGR of 14%/44%/ 52% over FY25-28. We reiterate our BUY rating with a DCF-based TP of INR570.
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