Delhivery Shares: Shares of Delhivery Ltd rose to the highest level of Rs 617, which is 9 percent higher than Rs 586 (IPO listing price) on the BSE in Thursday’s trading, gaining 12 percent in the past three days on investment expectations in capacity will increase future operational performance of the company.
The logistics provider’s stock traded at its highest level since listing on May 24, 2022. At its current level, Delhivery is 20 percent higher than the issue price of Rs 487 per share. The stock had hit a low of Rs 474 on its debut day.
In announcing its results for the March 2022 quarter (Q4FY22), Delhivery said most of the company’s investments in FY22 were focused on capacity and capacity building in the form of capex (about 7 percent of FY22 revenue) and inorganic growth, in addition to investments in working capital needs.
These investments are expected to increase scale and improve efficiency, reducing delivery costs and shortening delivery time, the company said.
Express delivery volume grew by 101 percent in FY22, far outpacing industry volume growth of about 40 percent, it added.
Delhivery co-founder and chief executive Sahil Barua and chief business officer Sandeep Barasia told ET in a post-earnings call that its operating leverage would begin even as it pursues growth.
“Growth and profit are not conflicting objectives for us at an operational level. The challenges investors rightly face is when you lose money at the unit level,” Barua said in an interview. “Now we are investing in capex. It’s down to 6.2 percent revenue for fiscal 2022. We expect that to stabilize at nearly 5 percent. Our operating EBITDA is almost 4 percent. So if the operating EBITDA goes above capex, the company starts to generate cash flows.”
The logistics major had raised Rs 5,235 crore through its initial public offering (IPO) to use Rs 2,000 crore of the proceeds to fund growth initiatives, Rs 1,000 crore for inorganic growth through acquisitions or strategic alliances and the remaining Rs 1,000 crore for general corporate purposes.
What should investors do now?
Credit Suisse has launched coverage with an outperform rating and a price target of Rs675. This rationale is based on a favorable industry structure, structural growth (30 percent+) in e-commerce volumes, strong moat and leadership in existing scale, network and technology, and recent break even, with incremental growth contributing synergistically to profitability; The foreign brokerage also added that diversified growth (e-commerce + broader logistics) and potential merit as an internet game versus others are also important. Credit Suisse has forecast a revenue CAGR of 29 percent over FY22-25 with profitability extending to 5.5 percent adj. EBITDA margin (1 percent in FY22) in FY25. Delhivery is trading at 42x FY25E adj. EV/EBITDA.
In another report, IIFL has launched coverage of Delhivery with a ‘sell’ rating, with a target price of Rs 442/share, as valuations appear to build in the seamless strategy execution, of rapidly scaling revenues, cost containment, cutting revenue and to become profitable in a sustainable way.
The expert opinions and investment tips in this News18.com report are their own and not the website’s or its management. Users are advised to contact certified experts before making any investment decisions.
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