Buy Delhivery Ltd for the Target Rs 570 by Motilal Oswal Financial Services Ltd
Strong volume growth; margins hit by high fuel cost and wage hike
* Delhivery reported a 28% YoY increase in revenue to INR29.3b in 1QFY27 (in line). EBITDA declined 4.5% YoY to ~INR1.4b (27% below our estimate), while EBITDA margins stood at 4.9%, down 160bp YoY and 260bp QoQ.
* EBITDA margin was impacted by higher labor costs following minimum wage revisions across Haryana, Karnataka, Uttar Pradesh and Punjab, lower labor availability due to elections, and higher fuel costs due to a one-month lag in the fuel cost pass-through mechanism.
* APAT stood at INR319m vs. INR911m in 1QFY26 (46% below our estimate).
* Core transportation segment, comprising Express Parcel and Part Truckload (PTL) segments, saw strong volume growth – Express Parcel: 322m parcels (+55% YoY) and PTL: 542kt (+18% YoY). Service EBITDA margins for Express Parcel/PTL stood at 15.6%/11.2%.
* Delhivery reported healthy volume growth, driven by share gains with existing customers, new customer additions across D2C, SME and consumer segments, Ecom Express integration, and industry consolidation. However, EBITDA margins were impacted by wage hikes and a lag in passing through higher fuel costs. Management remains confident of sustaining strong momentum in Express and PTL and keeps service EBITDA margin targets unchanged despite near-term disruptions. The cost increase is getting passed on to customers, which would reflect in 2Q. We cut our FY27 EBITDA estimates by 8% to incorporate the 1Q performance and maintain our earnings estimates for FY28. We expect Delhivery to deliver a CAGR of 13%/32% in revenue/EBITDA over FY26-28. We reiterate our BUY rating with a DCF-based revised TP of INR570.
Volume remains strong in core transportation businesses
* Express Parcel revenue grew 33% YoY to INR18.7b, with shipments rising 55% YoY to 322m after the integration of Ecom Express. Service EBITDA margin stood at 15.6%, down 70bp YoY and 320bp QoQ.
* PTL revenue grew ~25% YoY to INR6.3b, with tonnage increasing 18% YoY to 0.542MT. Service EBITDA margin stood at 11.2%, up 60bp YoY and 230bp QoQ, supported by improved yields and a favorable client mix.
* Combined transportation business (Express + PTL) reported a service EBITDA margin of 14.5%, impacted by wage hikes and a lag in passing through higher fuel costs
Valuation and view
* Delhivery is well positioned for future growth, supported by strong momentum in its core transportation businesses and a clear focus on profitability. Strong volume growth in Express Parcel and PTL, coupled with the company’s target of 16-18% steady-state margins over the next two years, provides a healthy growth outlook.
* However, we cut our FY27 EBITDA estimates by 8%, factoring in 1Q slippage, and maintain our FY28 earnings estimate. We expect Delhivery to deliver a CAGR of 13%/32% in revenue/EBITDA over FY26-28. We reiterate our BUY rating with a DCF-based revised TP of INR570
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