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Delhivery Ltd- What does the latest quarterly report tell amid stake sale by Tiger Global

ICICI Securities 14 Mins 05 Mar 2023

Logistics and supply chain solutions provider Delhivery reported its third quarter (Q3) results of FY23 recently. The numbers were a mixed bag with revenues dropping and losses widening compared to Q3FY22 levels, though adjusted EBITDA (earnings before interest, depreciation, amortisation and taxes) margin has improved over the previous two quarters of the current fiscal and costs have been trimmed.

Subdued volumes in the truck load (PTL) business due to slow pick-up in ecommerce segment, ongoing network footprint optimization while integrating SpotOn (B2B) and rains in the early part of the quarter dampened the numbers for the company. The express parcel division recorded flat volumes and the management has indicated that traction is back strongly in January and Q4 is likely to be quite robust. The smaller truck load (TL) and supply chain solutions businesses delivered robust year-on-year (YoY) revenue growth.

Going into Q4 and FY24, the management is confident of a sharp rise in ecommerce volumes, healthy traction in shipments in the PTL and express parcel divisions. Its cost and network optimisation strategies, and pricing revisions in a segment of customers are set to shore up margins as well.

How key financials moved

Delhivery’s December 2022 quarter revenues fell 8.6% over Q3FY22, but were up 1.5% quarter-on-quarter (QoQ). Net losses widened to Rs 194.3 crore in the third quarter as against Rs 126.5 crore in the same quarter of FY22. EBITDA slipped from Rs 54.2 crore in Q3FY22 to Rs -73.3 crore in the Q3FY23 quarter, but was better than the September and June quarters of the current fiscal.

Adjusted EBITDA (accounting for stock option expenses and the like) which is more representative, came in at Rs -67 crore during the quarter, as against Rs 74 crore in the same period last year.

On the adjusted EBITDA margin front, the figure came in at -3.7%, an improvement over Q1 and Q2 of this fiscal.

The ESOP expense for the December quarter was Rs 67 crore. It was Rs 70 crore and Rs 79 crore for Q1 and Q2 of FY23. For perspective, in FY21, the expense on this count were Rs 72 crore and in FY22 (with its IPO being near) it was Rs 320 crore.

The management has indicted that ESOP expense would be Rs 143 core in FY24. Thus, it would progressively have lower impact on the adjusted EBITDA.

The subdued volumes in the quarter may be attributed to the unseasonal rains in Gurgaon, which meant that the management took a cautious view of loads in its facility at Tauru. Till early October, the management continued to take a conservative view till the first week of October before pushing full operations without network delays.

Segment wise updates

Express parcel volumes flat: Delhivery derives 66% of its revenues from the express parcel division. This segment witnessed a 1% fall in revenues YoY in the December quarter and came in at Rs 1,200 crore. Revenues were up 7% QoQ. It is important to note that volumes were flat at 170 million, the same as Q3FY22 despite the previous period having 5 million parcels from Shopee, which has since shut down and exited operations in India. On a QoQ basis, volumes were up 6%.

PTL yields increase: In the December quarter, PTL revenue were down 42% YoY and 5.4% QoQ at Rs 277 crore. The freight tonnage decreased from 286 tonnes in the September quarter to 258 tonnes in the December period, a decline of nearly 10%. However, yields were up nearly 4.8% QoQ, on the back of better pricing with clients. This segment contributed 15% of overall revenues.

Supply chain services (SCS) and Truck load (TL): Revenues from the SCS division were up 33% YoY to Rs 178 crore. This segment accounts for 10% of overall revenues. The division added clients in auto and auto spare parts, healthcare, home furnishing, beauty and personal care, and consumer electronics. Delhivery has also expanded existing contracts in the auto, industrial and consumer segments.

The TL segment, too, recorded a 33% increase in YoY revenues to Rs 102 crore in Q3FY23.

Overall, the company’s adjusted EBITDA has been improving in every quarter of this fiscal. From Rs -217 crore in Q1, Rs -125 crore in Q2 to Rs -67 crore in Q3, due to sound cost containment measures with line haul expenses etc.

Management strategy and outlook

Delhivery’s volumes in January and February were up 10-20% over the previous months, signalling return of traction in the PTL business.

The company expects ecommerce shipments in the industry to grow by 15-20% in FY24 and hence it would benefit from the growth, thus helping its express parcel segment.

Delhivery has embarked on a multi-pronged strategy to improve margins. It is looking to increase pricing and rationalizing business with less-profitable customers. The company is looking to deploy more of tractor trailers in high-density routes for greater tonnage and also improving capacity utilization levels.

It is also looking to increase cost optimization by improving processes to capture weight correctly at all stages and transport and avoid any losses on this count. The company looks to bet better at filling its trucks.

Delhivery is looking to consolidate multiple transportation facilities – hubs, sortation, service and return processing centres. It cited the example of Welspun, which may result in improvement in the economics of that facility as well and allow having a large hub.

In its PTL business service levels are at a high 94% level in January.

Given the improvement in volumes, pricing increases and cost optimization measures in place, Delhivery would be looking at better prospects in Q4 FY23 and FY24.

Recent share sale by large investor

Last week (Feb 22), one of the large original and anchor investors in Delhivery pared exposure to the company in a bulk deal. Tiger Global, which owned a 4.68% stake in the company as of December 2022 via venture capital firm Internet Fund III PTE, sold shares in a bulk deal. It sold 1.7% stake in Delhivery at around Rs 335 levels and the total value of the transaction was Rs 414 crore.

At the time of the IPO, Internet Fund III had a 5.23% stake. It pared a bit of its exposure after the anchor lock-in period of six months ended in November’22. Delhivery’s shares had touched fresh lows of Rs 340 at that time. Another key investor CA Swift Investments, which held 5.03% stake during Delhivery’s IPO in May 2022, reduced exposure after the lock-in and brought down its holding to 2.53% as of December.

But the markets have shrugged off the sale as Delhivery’s share prices are up from those levels and closed at Rs 344.8 levels as of Feb 27. The share price had in fact rallied for a couple a days after Tiger Global’s stake sale to Rs 352 levels.

The firm’s share prices are down over 50% from their peak levels in July 22 and about 36 per cent down from the listing in May 2022.

The stock’s battering may be part of the general carnage witnessed in new-age internet and technology companies being shunned by markets in a risk-averse environment due to their loss-making financials.

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