Delhivery bets on improving H2 demand to deliver earnings
Logistics company Delhivery Ltd poured cold water on investors’ hopes with muted September quarter (Q2FY24) earnings. Revenue at ₹1,942 crore, rose 8% year-on-year, falling short of consensus estimates. The crucial Express Parcel business with 12% volume growth at 181 million, lagging expectations, was a dampener. Importantly, the adjusted Ebitda loss of ₹13 crore, although narrowing, was another concern. The management attributed lower growth in the first half of the year to a slew of factors such as integration of Spoton Logistics, expanding its presence across geographies. Ebitda is earnings before interest, taxes, depreciation, and amortization.
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That said, a comforting factor is that the second half of the year tends to be stronger for Delhivery. The festive season and end-of-year sale season in December attract higher volumes not just from platforms such as Amazon, and Flipkart, but also from brands that have an omni channel presence, the management said in the Q2FY24 earnings call. The management continues to expect the e-commerce industry to grow by 15-20% going ahead with Delhivery seeing volume growth at the higher end. In October, Express Parcel volumes likely exceeded 70 million and daily Part Truck Load (PTL) volumes are beginning to touch 4,600-5,000 tonne levels, the management added. The PTL business, which caters to the B2B segment, saw 22% volume growth in Q2FY24 to 348,000 tonnes. Further, the company is also taking steps to revive margins and boost its market share. For instance, its strategy to pass on efficiency gains in the B2C segment (where customers are price-sensitive) bodes well for future market share gains, said Emkay Global Financial Services report dated 5 November. Plus, yield improvements in the B2B segment, which focuses more on network speed and reliability, should aid the path towards profitability, it added. Also, with the majority of network expansion investment for FY24 behind, operating leverage in H2 should improve aiding a turnaround in Ebitda. Thus, Emkay expects adjusted Ebitda to witness breakeven in FY24.
For now, the pace of margin recovery and market share trajectory would be crucial for the stock. But that alone may not be enough. Over the long term, if the pre-IPO enthusiasm is to return, then the continued profitability will have to be accompanied by 18-20% growth in express parcels for several years (a key reason for the investor buy-in during the IPO), according to Nuvama Research. Since its listing in May 2022, the stock declined by 17.4% and settled at ₹409.
