Delhivery Gets ‘Buy’ Rating On Improved Margins, Volume Growth

Delhivery Ltd. got a 'buy' rating from brokerages on improved margins, volume growth, and cost optimisation measures.

"The company has broken even at an adjusted Ebitda margin level. Positive momentum in margins was visible starting quarter 2, continued into quarter 3, and the same forces have continued into quarter 4 as well. The improvement in margins has been driven by increased utilisation across the network, with increased volumes and a number of cost optimisation measures," said Sahil Barua, management director and chief executive officer of Delhivery, during the fourth quarter earnings conference call.

Out of the 21 analysts tracking the company, 14 maintain a ‘buy' rating, five recommend a ‘hold,' and two recommend ‘sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 17.9%.

The relative strength index is 46.19, implying that the stock is neither overbought, nor oversold.

Here is what brokerages have to say

Kotak Institutional Equities

• Maintains a ‘buy' rating with a target price of Rs 410.

• Delhivery's Tauru plant clears inventory 10 times a day versus 1x for its peers.

• Due to the company's mesh network, 70% of the shipments go through direct routes, while this percentage is much lower for a hub-and-spoke player.

• There is EPS growth to be observed moving forward.

• The improvement in margin over FY2022-26E is expected to be 600 basis points.

• The revenue CAGR over FY2023-26E is expected to be 22%.

Jefferies

• The brokerage maintains a ‘buy' rating with a target price of Rs 570.

• 60% of the clients are large corporates and the balance are MSMEs, which helps with the margin profile.

• 3.2x FY2025E implied EV/Sales multiple

• Delhivery is already dominant in B2C, and the company is now making a mark in B2B through its acquisition of Spoton.

• The company should break even in FY2025-26E, with management's focus on profitability in an industry with a strong growth tailwind.

• The e-commerce demand being higher than anticipated might lead to an upside scenario.

• Continuing volume loss in Spoton might lead to a downside scenario.

Investec Capital Services (India) Pvt.

• The brokerage rated the stock a ‘buy,' with a target price of Rs 415, implying an upside return potential of 15.90%.

• Delhivery's mesh network allows it to reduce delivery time, improve productivity, and offer flexibility in terms of the route taken to deliver a parcel.

• Management aims to achieve 20% service Ebitda and 14% Ebitda margins once the business achieves 3x its current scale.

• Capex intensity is expected to settle at 5–6% of the revenue over the next few years.

• Delhivery delivers approximately 2x parcels versus its closed peer.

• Delhivery's market share has increased from 15% a few years ago to 22% now.