Delhivery Shares: Shares of Delhivery Ltd rose to its highest level of Rs 617 which is 9 per cent higher than Rs 586 (IPO listing price) on the BSE in Thursday’s trade, gaining 12 per cent in the last three days on expectations that investments in capacity will drive the company’s operational performance going forward.
The stock of the logistics services provider was trading at its highest level since listing on May 24, 2022. At current levels, Delhivery is 20 per cent higher over its issue price of Rs 487 per share. The stock had hit a low of Rs 474 on its debut day.
While announcing its March 2022 quarter (Q4FY22) results, Delhivery said that the majority of the investments made by the company in FY22 were towards capacity and capability building in the form of capex (around 7 per cent of revenues in FY22) and inorganic growth, in addition to investments in working capital requirements.
These investments are expected to drive scale and enhance efficiency – reducing the cost of delivery and decreasing the time for delivery, the company had said.
Delivery’s express parcel volumes grew 101 per cent in FY22, far outstripping the industry volume growth of around 40 per cent, it added.
Delhivery cofounder and chief executive Sahil Barua and chief business officer Sandeep Barasia told ET in a post-earnings call that its operating leverage would kick in even while it chases growth.
“Growth and profits are not conflicting objectives for us at an operating level. The challenges that investors rightly have is if at the unit level you are losing money,” Barua said in an interview. “Now, we are investing in capex. It has come down to 6.2 per cent revenue for fiscal year 2022. We expect that to stabilise at close to 5 per cent. Our operating Ebitda is close to 4 per cent. So, when operating Ebitda goes above capex, then the company starts generating cash flows.”
The logistics major had raised Rs 5,235 crore through its initial public offer (IPO) to utilize Rs 2,000 crore of the proceeds in funding growth initiatives, Rs 1,000 crore towards inorganic growth through acquisitions or strategic alliances and the remaining Rs 1,000 crore for general corporate purposes.
What Should Investors Do Now?
Credit Suisse has initiated coverage with outperform rating and a target price of Rs675. This rationale has been based on favourable industry structure, structural growth (30 per cent+) in e-commerce volumes, strong moat and leadership in extant scale, network and technology, and recent breakeven, with incremental growth aiding profitability synergistically; The foreign brokerage also added that diversified growth (e-commerce + broader logistics) and potential merit as an internet play vs others are important as well. Credit Suisse has estimated a 29 per cent+ revenue CAGR over FY22-25 with profitability expansion to 5.5 per cent adj. EBITDA margin (1 per cent in FY22) by FY25. Delhivery trades at 42x FY25E adj. EV/EBITDA.
In another report, IIFL has initiated coverage on Delhivery with a ‘sell’ rating, with a target price of Rs 442/share, as valuations seem to be building in the seamless strategy execution, of rapidly scaling-up revenues, containing costs, cutting yields and yet turning profitable in a sustainable manner.
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