Delhivery is nothing like Zomato or Paytm – Credit Suisse expects stock to outperform
- Logistics startup Delhivery made a slow start on the Indian stock exchanges on May 24 due to weak market sentiment and poor financial position of the company.
- The company was struggling to get demand for its IPO as investors stayed away from the IPO as Delhivery is a loss making company.
- Contrary to most views, Credit Suisse has introduced an ‘outperform’ rating and suggests a 26% increase in the share price.
Gurugram-based Delhivery has often been linked with other internet-based businesses like Zomato, Paytm and Nykaa – but the brokerage firm doesn’t think so.
Although the logistics company banks on delivering goods for top e-commerce players, its customers aren’t faced with spending money to acquire what it wants — customers, according to Credit Suisse.
“We prefer Delhivery to other internet peers for no customer acquisition costs, diversified growth – e-commerce and comprehensive logistics, and cheaper valuations for similar growth play,” said a report by the brokerage firm.
Credit Suisse rolled out coverage on the company that listed on May 24 at a flat 1% premium- with an ‘outperform’ rating. It expects the share price to rise 26% to ₹675 in one year. It recognizes that there is a ‘deep gulf’ in Delhivery with scale, growth and profitability.
Its rating is based on “strong gap and existing scale, leadership in network and technology, recent breakeven, profitability synergistic with incremental growth, diversified growth in e-commerce, broad logistics and potential merit as Internet play versus others”. .
| description | revenue | Harm |
| FY22 | ₹6,882 crore | ₹1,011 crore |
| FY 21 | ₹3,838 crore | -₹415 crore |
| FY20 | ₹2,988 crore | -₹268 crore |
| FY19 | ₹1,694 crore | -₹1,783 crore |
Source: Delhivery DRHP and Company Filings
Delhivery doubles its parcel volume
The company also doubled its parcel volume in FY12 and achieved a strong market share of around 24-25% in the third quarter – thanks to the business from e-commerce. Credit Suisse expects more than 30% structural growth in its e-commerce volumes.
While Delhivery’s IPO was subscribed 1.63x, most of the subscriptions came from the eligible institutional buyer category.
The market seems to have lost its appetite for loss making companies after the poor experience of Paytm, Zomato and the like. The company doubled its losses to ₹1,000 crore in FY22.
There were also concerns about its high valuation, which earned it an ‘avoid’ rating.
“Despite the improvement in the topline, the company is making losses. As we are witnessing negative market sentiment towards similar category stocks (Zomato, Paytm), we suggest investors to avoid this issue,” said a pre-IPO report by BP Equity.
Delhivery Express provides a full range of logistics services including parcel delivery, heavy cargo delivery, PTL freight, TL freight, warehousing, supply chain solutions and cross-border services. Yet its over-reliance on e-commerce is also a cause for concern.
“A significant portion of the company’s business is accounted for by some large customers. Their future actions may have an adverse effect on the company’s business. If the company fails to expand the size of the business with its existing customers, then Its business, revenue, profitability and growth may suffer,” HEM Securities said on its IPO.
Here are the brokerage recommendations at the time of IPO a few weeks back:
| brokerage | ratings |
| angel one | neutral |
| BP Equity | avoid |
| ICICI Securities | note rated |
| Hem Securities | Short term investors avoid stocks, can subscribe for long term |
| Choice Broking | subscribe with care |
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