Delhivery expects to drive on with seasonal uptick, new business growth

Most brokerages are positive about logistics company, expect it to sustain profits

Logistics major Delhivery gave a better-than-expected operational performance in the June quarter and improved outlook in key segments, helping expectations that the stock will sustain. Volumes in the company's largest segment of express logistics were muted but cost control helped Delhivery beat margin expectations. Most brokerages have a positive outlook about the company, citing its focus on improving volumes, profitability and diversification in fast-growing categories.

Express parcel, which accounts for 60 per cent of the company's revenue, delivered an underwhelming 6 per cent revenue growth in a seasonally weak quarter. Volume growth did not meet expectations but yields were up 5.6 per cent and helped the company to achieve an uptick in sales growth in the segment.

The partial truckload (PTL) segment grew 25 per cent over the year-ago quarter, helped by a 16 per cent increase in freight tonnage. While service revenue from truck road rose 19 per cent, supply chain services (SCS) expanded 25 per cent and were better than estimates. The PTL segment has benefited from the company's growing presence beyond the three top metros. SCS has gained from a combination of new account additions and strong seasonal demand in consumer durables.

 

Analysts led by Aditya Mongia of Kotak Institutional Equities believe that Delhivery has been able to compensate for a year-on-year decline in express parcel volumes from market places by secular growth trends across categories in non-market places (including direct to consumer or D2C). The increasing share of heavy loads has also helped, they add.

The PTL segment is expected to sustain its growth on better integration of assets. The company expanding its direct sales outreach to Tier-II and -III markets and foray into new industries such as batteries, chemicals and consumer goods would drive volume, according to Ankita Shah and Jinesh Kothari, who are analysts with Elara Capital. Delhivery plans to improve profitability in PTL, which is at 3.2 per cent in line with margins in the express segment (18 per cent).

While competitive pressures exist, Delhivery's management believes PTL revenue will continue to grow as the industry shifts towards integrated players. India will follow the trend in the United States where the top five logistics companies have a 65 per cent market share in PTL, it believes.

The company expects the express parcel segment to pick up in the festival season later this year and grow in line with the industry growth rate of 15-20 per cent. It has negotiated with e-commerce company Meesho on the volume front and this has stabilised in line with expectations. Incremental gains are expected from Delhivery’s entry in quick commerce, where the company plans to create a warehousing/delivery infrastructure for D2C brands and smaller quick-commerce players.

The Street will also keep an eye on Delhivery’s ability to sustain profitability and net profit trend. While the company suffered an operating loss in the year-ago quarter, margins were up on a sequential basis to 4.5 per cent in the June quarter. Net profit of Rs 54 crore was on account of change in depreciation accounting to written down value method and reversal of ESOP expense. There was also a one-time loss of Rs 5 crore on impairment of intangible assets and goodwill. Adjusted for these, the company just about broke even at the net level.