Delhivery Gets A ‘Buy’ From Jefferies On Being ‘Best Logistics Play’
Jefferies has set its target price for Delhivery at Rs 775 apiece, implying a 38% potential upside from the current levels.
Shares of Delhivery Ltd. gained after Jefferies initiated coverage with a ‘buy’, terming the company as the “best logistics play” in India’s fast-growing e-commerce sector.
The company, listed on the bourses earlier this year, is the “largest third-party logistics in business-to-consumer” in an industry that Jefferies expects will grow at 30% annualised rate in the medium term, according to an Aug. 26 research report.
The financial services provider has set its target price for Delhivery at Rs 775 apiece, implying a 38% potential upside from the current levels.
The Gurugram-based company posted a net loss of Rs 400 crore in the quarter ended June compared with a Rs 192-crore loss a year ago. Jefferies said the management has reiterated that profitability focus is at the core of its growth strategy and that Ebitda break-even by FY25 is “realistic on scale”.
“Our estimates factor flattish gross margin, with operating leverage driving the turnaround in the next two-three years... As costs are optimised across B2C and B2B parcels, gross margin could also look up and surprise our estimates.”
Jefferies also sees the company moving to net profitability by FY26. “Fixed cost leverage should support the margin turnaround on 31% FY22-26 revenue CAGR as variable cost pass-through ability with market positioning should sustain.”
Also, it said the stock has traded at a high of 3.9x EV/sales since IPO and is currently at 2.8x FY25 EV/sales after the Q1 FY23 Spoton integration disappointment. “As business operations normalise, volume and margin recovery should see the stock rerate back to previous peaks.”
Jefferies listed continuing Spoton volume loss and slowdown in e-commerce as potential downside risks for the stock.
Since listing, the stock has largely traded above its IPO price of Rs 487 apiece, contrary to other new-age companies such as Zomato Ltd. and One 97 Communications Ltd. (Paytm) that have been beaten down.
Shares of Delhivery gained as much as 4.4%, the most since Aug. 4 before closing 0.6% higher on Friday. Of the 12 analysts tracking the company, six maintain a ‘buy’, four suggest a ‘hold’ and two recommend a ‘sell’, Bloomberg data shows. The 12-month consensus price target implies an upside of 11.6%.