Margin worries weigh on logistics major Delhivery's strong growth outlook

Logistics major Delhivery reported a muted performance in the June quarter (Q1FY27) as operating profit declined despite healthy growth in the topline. While volumes remained robust, the operating performance was sharply lower as it was hit by wage-related changes and fuel price hikes.

 

Though margins were hit in Q1, the company expects its key segments of express parcel and part-truckload, or PTL, to post margins in the 16-18 per cent range over the next two years. It also expects the growth momentum to sustain for the two segments and has guided for B2C volume growth of 20-30 per cent and PTL volume growth of 18-22 per cent.

 

Given the Q1 margin miss, brokerages have cut their operating profit estimates for FY27 by 8-12 per cent. They have, however, retained their buy ratings given the strong revenue and profit momentum over the next two years.

 

Volume growth for Delhivery was healthy, with a higher revenue share from existing customers, new customer additions, Ecom Express integration, and industry consolidation. In the express parcel segment, volume growth was 55 per cent higher, while in PTL it was 18 per cent higher. Segment-level operating profit margin for express parcel was 15.6 per cent, while that for PTL was 11.2 per cent.

 

Motilal Oswal Research believes that Delhivery is well positioned for future growth, supported by strong momentum in its core transportation businesses and a clear focus on profitability.

 

Alok Deora and Shivam Agarwal of the brokerage say that strong volume growth in express parcel and PTL, coupled with the company’s target of 16-18 per cent steady-state margins over the next two years, provides a healthy growth outlook. They have cut the FY27 operating profit estimates by 8 per cent and have a buy rating with a target price of ₹570.

 

Overall operating profit margin came in at 4.9 per cent, which was 160 basis points lower Y-o-Y and fell 260 basis points on a sequential basis. It was impacted by higher labour costs on the back of minimum wage revisions across Haryana, Karnataka, Uttar Pradesh and Punjab, lower labour availability on account of elections, and higher fuel costs due to a one-month lag in the fuel cost pass-through mechanism.

 

Excluding fuel cost hikes (₹35 crore Q1 impact, pass-through from Q2) and Ecom integration costs, reported operating profit margin would have been about 6.6 per cent.

 

The management expects to maintain segment operating profit margins of 16-18 per cent in B2C and a 100-150 basis point improvement in the PTL segment, as operating leverage and fuel pass-through mechanisms kick in.

 

However, Anshul Agrawal and Vivek Sethia of Emkay Research expect margin recovery to be gradual, given the current inflationary environment and impending wage regulations. New initiatives, though remaining long-term levers, would lead to a further drag on profitability in FY27, they add. The brokerage has cut its FY27 operating profit estimate by 12 per cent and FY28 earnings estimate by 6 per cent. It has retained its buy rating with a target price of ₹525.