Delhivery jumps over 10% post tepid debut: Should you hold or sell shares?

Analysts remain mixed over the Gurgaon-based logistics firm Delhivery due to volatile market conditions and loss-making nature of the company.

Logistics firm Delhivery debuted bourses at Rs 493, 1.23 per cent higher from its upper price band on Tuesday at the BSE. The stock hit a high of Rs 543, 10 per cent up from its listed price on the BSE. In comparison, the S&P BSE Sensex remained flat at 54,200 levels. Delhivery’s Rs 5,235 crore initial public offering (IPO), the second-biggest that markets saw in 2022 after Life Insurance Corporation of India (LIC), was subscribed 1.63 times on the final day.

While the issue saw bumper response from qualified institutional buyers with 2.66 times subscription, retail investors and non-institutional investors subscribed 57 per cent and 30 per cent, respectively. Overall, the issue received bids for over 10 crore shares against 6.25 crore shares on the offer on the last day. The public issue was priced at Rs 462-487 per share.

That apart, analysts suggest that the tepid listing of the logistics firm was due to volatile market conditions and loss-making nature of the company. “New investors must wait and watch the strategy of the company post listing. We suggest investors to invest once the concrete plans to turn profitable are laid down by the company. Those who applied for listing gains can maintain a stop loss of Rs 460 per share,” said Santosh Meena, Head of Research, Swastika Investmart.

Ajit Mishra, VP-Research, Religare Broking, too, believes that the fundamentals of Delhivery are not strong enough compared to other logistic players in the market and suggests investors exit the stock on a bounce. “We suggest investors’ to book profits on a rise. The loss-making nature of the company, higher valuations and lower market-cap compared to other listed logistics players makes the stock unfavorable to hold in the long haul,” he said.
 

The Gurgaon-based supply chain operates a pan-India network and provides services in 17,488 postal index number codes. It provides a full-range of logistics services, including express parcel delivery, heavy goods delivery, truckload freight, warehousing, supply chain solutions across business lines.

From a financial perspective, the company reported around 31 per cent growth in net sales in fiscal 2020-21 (FY21) to Rs 3,646.5 crore from Rs 2,780.6 crore, a year ago. However, profit-after-tax declined nearly 54 per cent in FY21 to Rs 415.7 crore from Rs 268.9 crore.

That said, analysts remain optimistic of the company’s new digital-native segments from a long-term perspective that brought innovation in the traditional business-to-business supply chain dynamics. “Due to the non-discretionary nature of the logistics business, Delhivery is poised to gain in the long run. Delhivery is the fastest-growing in the logistics business and the increased usage of technology makes it a distinct market player. The company is not based on a cash-burn model. It has been utilizing funds to build technology and acquisition of businesses. We suggest investors to ‘hold’ the stock with a target price of Rs 800,” said Vinit Bolinjikar, Head of Research, Ventura Securities.

Meanwhile, analysts at YES Securities believe the company will turn profitable  over the longer run due to rising market share. “We believe increasing market share, rising utilizations and synergy benefits arising from Spoton will help the company turn profitable. Given strong market sentiment and healthy market share in third-party, last-mile logistics delivery, we recommend the stock to the investors from a long‐term perspective,” the report said.

Post-listing, Delhivery joined its league of logistics peers like Blue Dart Express, TCI Express, and Mahindra Logistics. Apart from Blue Dart Express that gained over 7 per cent this year at bourses, TCI Express and Mahindra Logistics bled over 25 per cent and 32 per cent, respectively. In comparison, the S&P BSE Sensex declined over 8 per cent during the same period.