Delhivery Shares Surge As Credit Suisse Initiates Coverage With An 'Outperform'

Shares of Delhivery Ltd. rose after Credit Suisse initiated coverage with an 'outperform' rating, citing favourable industry structure and consistent structural growth in e-commerce volume.

The express parcel and the related e-commerce business are ripe for profitability gains, Credit Suisse said in its note. The brokerage prefers Delhivery over sectoral peers due to diversified growth, no customer acquisition costs and attractive valuations.

According to Credit Suisse, the underpenetration in India's e-commerce business as well the e-commerce parcel volume segment compared to China, is an indication of inherent opportunity in the space.

It also identified the need for efficient, technology-driven, large-scale organised networks to transform the logistics sector.

Credit Suisse sees the scale and heft of capital as a major positive for the largest and fastest-growing third party logistics express parcel delivery player in India, by volume and revenue.

Limited presence of global players in the space means less competition while the performance of the domestic firms like Blue Dart, DTDC and Mahindra, in terms of leveraging growth, has been mediocre, Credit Suisse said. The consolidation in the industry is aiding Delhivery's rise as well, according to the note.

The company was granted a U.S. patent for its proprietary technology product on May 27. The patent covers Delhivery's innovation in address verification and local mapping technologies.

Shares of Delhivery, which got listed on May 24 at a premium after a tepid IPO, rose 15% to Rs 617.35—the most since its market debut—after initiation of coverage by Credit Suisse. The stock closed the day with 6.5% gains.

The stock has already garnered contrary views from brokerages. IIFL initiated coverage of the stock with a 'sell' rating and a target price 26.6% below Thursday's market price.

Here's a summary of Credit Suisse's view of Delhivery:

• Initiates coverage of the stock with 'outperform', target price set at Rs 675, an implied upside of 27.3%.

• Cites favourable industry structure, structural growth (over 30%) in e-commerce volumes, distinct advantages over peers in network and technology, the recent breakeven and diversified growth in e-commerce and logistics as reasons for the recommendation.

• The express parcel business is consolidating with three large players while e-commerce is getting better distributed. The favourable industry structure bodes well for Delhivery.

• The scale and capital heft that Delhivery has is likely to deter new players in the space while the underpenetration in India's e-commerce business as well as e-commerce parcel volume underscores the inherent opportunity in the sector.

• Leasing and logistics sector is ripe for profitability gains.

• The company's evolving in-house tech platform supports its entire operations.

• Prefers Delhivery to other internet peers on no customer acquisition cost, diversified growth and and cheaper valuation.

• Estimates 29% revenue CAGR over FY22-25 with profitability expansion to 5.5% by FY25.