Things to consider before you subscribe to Delhivery IPO

The much hyped Delhivery IPO is scheduled to open on 11th May and has got many excited. Though the tech-based logistics startup will have only 10% of the retail investor participation, it is expecting to raise INR 5,235 crore with the listing. The IPO has a fixed price band of INR 462-487 per share, and investors can bid for a minimum of 30 equity shares and then in the multiples thereof. Out of the amount to be raised, INR 4,000 crore will be fresh equity shares and the remaining will be offloaded by existing shareholders and promoters.

Few important IPOs are lined up in the coming days, but the one which will be in the limelight will be the logistics service company Delhivery, especially since it continues to be in losses. The issue will test the market appetite for loss-making companies, especially after the poor post-performance of other startups. Successful subscription of Delhivery will be a morale booster of the markets overall.”

Vijay Singhania, Chairman, TradeSmart

Delhivery plans to use the fresh issue proceeds for purposes of funding organic/inorganic growth initiatives, and general corporate purposes. Considering the upper limit of the pricing band i.e. INR 487 per share, the company will reach a market capital of INR 35,284 crore and it’s enterprise value will scale up to INR 29,000 crore.

Though Delhivery has substantially grown since its inception in 2011, becoming India’s largest integrated logistics services provider, the company does not have a past track-record of profitability given focus on growth. While it has reached near break-even on an adjusted EBITDA basis for nine month FY22 (adjusted EBITDA margin of negative 0.72%), how profitable it can get at the net profit level in future, is still unclear and depends on how multiple variables play out, going forward.

Delhivery provides express parcel transportation, PTL and TL freight, cross-border and supply chain services to over 23,000 customers, including large & small e-commerce participants, SMEs, and other leading enterprises & brands. Through their supply chain platform and logistics operations, they boast of bringing flexibility, breadth, efficiency and innovation to their customers’ supply chain and logistics.

They work with partners like franchisees, retail partners and delivery agents, by having them onboard their physical assets and resources and participate in their platform. They have partnered with over 11,000 vendors and network partners who provide pickup, delivery services, and truckload capacity. Their network partners are supported by their in-house technology systems, empowering them to grow their business by offering multiple Delhivery services in their catchment areas.

The company claims to possess vast amounts of data intelligence with regard to multiple aspects of logistics (such as vehicle tracing, fleet data, locations and products data, transactions, vision data from cameras across facilities etc)., which is eventually used to enhance efficiency in the services they provide to the customers.

The company has witnessed strong growth and outperformed many of its peers in growth in the recent years. It reported revenue from operations of INR 4,811 crore for the nine months ended December 21. While margins are still negative, it has improved year on year. Net loss was at INR 891 crore and adjusted for one-off items, net loss would have been around INR 300 crore. While there is scope for margins to improve as company gains from operating leverage, investors need to note that logistics business is a low-margin business and this needs to be factored while determining valuation multiples. 

All said, in view of the current inflation and interest rate trends, there is a possibility that investors may not be ready to take aggressive risk when it comes to placing their bets on unprofitable companies. However, there is hope when it comes to long term investments as in an industry which has always been highly unorganised in India, Delhivery has been marking a bigger territory in the organised space of the industry.

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