New initiatives, margin gain hopes positives for logistics major Delhivery

Logistics major Delhivery has had promising Q2FY25 results.

 

The Q2FY25 consolidated revenue was Rs 2,190 crore (up 0.8 per cent quarter-on-quarter or Q-o-Q and 12.8 per cent year-on-year or Y-o-Y).

 

Express parcel revenue was Rs 1,300 crore, (up 1.7 per cent Q-o-Q/7.3 per cent Y-o-Y) alongside better yield (+5 per cent Y-o-Y) in the segment.

 

Express parcel volume grew 2.2 per cent Y-o-Y. Partial truckload (PTL) revenue grew 9 per cent Q-o-Q, 27.1 per cent Y-o-Y to Rs 470 crore, aided by a rise in freight tonnage (up 22.7 per cent Y-o-Y).

 

Truck load revenue was up 1.3 per cent Q-o-Q and 5.3 per cent Y-o-Y to Rs 160 crore.

 

Supply-chain services revenue declined 23.9 per cent sequentially but grew 20.1 per cent Y-o-Y to Rs 200 crore.

 

Adjusted operating profit was Rs 10 crore with margin of 0.5 per cent. Net profit was Rs 10.2 crore in Q2FY25 (against loss of Rs 100 crore in Q2FY24).

 

Express parcel segment is a differentiator for Delhivery’s express network. It is also piloting an intra-city rapid delivery (1-4 hours) model to service ecommerce platforms, which face the challenge of quick commerce. 

 

Delhivery is trying to build a large reseller franchise network to cater to micro, small and medium enterprises (MSMEs) and direct to consumer (D2C) customers in partial truckload (PTL).

 

The outlook for Q3FY25 is strong as express parcel volumes increased 30 per cent Q-o-Q in October.

 

Working capital efficiency is improving (1-2 days every year) and capex intensity is coming down.

 

According to the management, margins for express parcel and PTL in Q2FY25 were impacted by investments in expanding capacity in preparation for the festival season.

 

The management guided a service operating profit margin of 17-18 per cent for express parcel business, going forward. Delhivery's competitive advantages are visible as a low-cost, high-quality logistics partner with diversified business.

 

It does not have client concentration.

 

In PTL, the company has scaled up to handle heavy consignments and is seeing strong demand for items over 3 kg.

 

The expectations for service operating profit margin in PTL is set to reach 16-17 per cent, excluding yield improvements, driven by volume growth.

 

The management outlined initiatives aimed at driving volume growth, such as launching and expanding a third-party shared quick-commerce network serving e-commerce, B2C, and B2B clients. It also called for introducing faster regional surface (next-day) and national air shipping options and rolling out a large-scale aggregator reseller franchise network nationwide, modelled on DTDC’s approach.

 

In addition to this, it is also offering value-added services like address disambiguation, RTO reduction and insurance to improve yields.

 

In respect to quick commerce, it plans to operate facilities between 2,500 and 5,000 sq ft in 6-7 cities, with a pilot underway in Bengaluru with real-time visibility of inventory.

 

The management has guided for FY25 capex at 6.5-6.7 per cent of revenue and less than 6 per cent of revenue in FY26, signalling reduced capital intensity.

 

Over the next 2-3 years, it anticipates reducing working capital days by 1-2 days annually.

 

Key risks include pricing pressure in express parcel or PTL business and medium-term growth visibility worsening due to global headwinds.

 

While service operating profit margin contracted sequentially on account of network expansion, pickup in volumes in Q3 along with declining capex intensity bodes well for the margin.

 

Strong net cash position and reducing capex intensity are likely to help it overcome headwinds. Operating profit margin could climb from the current low of 1.6 per cent to near 9 per cent.

 

While the stock has risen on the results, this is after a sharp correction. And, the current price may be a good entry point, given the target upside valuation of 20 per cent.