delhivery pvt ltd Management discussions

Macro economic outlook

Global economy

FY23 began amidst an uncertain macroeconomic environment. The conflict in Ukraine and the concerted sanctions that followed on Russia, supplier of 10% of the worlds energy, dampened growth, and strained supply chains around the world. Global economic growth was dealt another blow in FY23 when central banks of all major economies tightened their monetary policies due to the inflationary pressures. As a result, global economic growth is projected to fall from an estimated 3.5% in 2022 to 3.0% in 2023. Growth in emerging and developing Asian economies is expected to be 5.3% in 2023 and 5.0% in 2024.

Indian economy

India is one of the fastest growing economies and is expected to be among the top three economic powers in the world by 2035, supported by its demographics and strong fundamentals. Indias GDP contracted by a record 6.6% during FY21 as the COVID-19 pandemic severely impacted the manufacturing and services sectoRs. However, the economy showed a V-shaped recovery in FY22 with the return of consumer confidence, robust financial markets and an uptick in manufacturing and exports. During FY23,

India has demonstrated remarkable resilience in navigating global headwinds and registered a growth of 7.2% which was highest amongst the major economies. Indias GDP was US$3.4 trillion in 2022 and according to the target set by the government, GDP is expected to touch US$5 trillion by 2025. The logistics and transportation sector will be one of the frontline sectors to benefit from the long run of economic upturn.

Global logistics industry overview

The global logistics market accounted for US$7.98 trillion in 2022 and it is expected to grow to US$18.23 trillion by 2030 at a noteworthy CAGR of 10.7% from 2023 to 2030.

The growth in the global logistics market will be primarily driven by the growth in online retail. Asia-Pacific is the leading regional market for logistics across the globe.

The advancements in technology constituting automated material handling equipment, GPS, and biometrics are helping organisations and businesses to work efficiently, thereby stimulating the growth of the logistics market in the region.

India logistics industry overview

In India, the logistics sector accounts for 14.4% of the countrys GDP, making it a significant player in the countrys overall economic success. Over 22 million people rely on it for their livelihood. The logistics sector in India was valued at US$382 billion in 2021, with the market estimated to increase to US$531 billion by 2026, at a 6-7% y-o-y growth rate. India has jumped six places over last year to 38 out of 139 countries in the 7^th edition of the Logistics Performance

Index (LPI 2023) released by the World Bank. The Indian government aims to be among the top 25 countries by 2030. In India, the logistics sector is dominated by transportation.

At present, the road transportation sector has the largest share of around 60% of total cargo movement in terms of tonnage, followed by railways.

Industry structure and growth drivers

Road transportation: Road transportation represents the movement of freight over the national and state highway road network and in-city delivery within India.

Improving reliability and reducing turnaround times due to improvement in road infrastructure, relatively low cost of operation and increase in load-carrying capacity of trucks have led to road transportation having a higher share of freight traffic in comparison to other modes. The domestic road transportation market consists of three segments:

1. Express Parcel: Mainly composed of e-commerce shipments, speed post and document courier with individual parcel weight of less than 40 kg and turnaround time of less than three days.

2. Part Truckload (PTL): Domestic road transportation service with total shipment weight of 40-1,000 kg, which is insufficient to fill a full truck. Volumes from multiple shippers are therefore clubbed together at consolidation centres into full truckload prior to movement. PTL services can be further segmented into Express PTL, with turnaround times similar to Express Parcel and Economy PTL, with slower turnaround requirements.

3. Truckload (TL): Domestic road transportation service where the shipper requires a dedicated truck or trailer, typically moving directly from point of departure/origin to the point of destination.

Rail transportation: Rail transportation includes movement of shipments over public and private rail networks. India has the worlds fourth largest rail network after the US, China, and

Russia. Railways, after roadways, accounts for the second highest percentage of goods moved in terms of volume.

It is one of the most cost-effective modes of bulk freight transportation for shipments like commodities (e.g. coal, iron ore, cement), agri products (e.g. fertilisers, food grains, mineral oil) and raw materials.

Domestic air express transportation: Domestic air express transportation includes movement of shipments using dedicated cargo aircraft or belly capacity on passenger flights. This is a significantly more expensive means of transportation used mainly for applications such as delivery of critical medical supplies like vaccines, time-sensitive products such as certain critical spare parts or for critical documents such as passports, banking documents etc.

Despite being multiple times costlier than other modes, it remains a preferred mode for many product categories.

Cross-border transportation: Cross-Border transportation includes movement of shipments into and out of India either as individual parcels (courier) or freight. This may be carried either via air or sea. The international air cargo industry is highly organised due to the regulations of the International Air

Transport Association (IATA). Further, sea freight movement is containerised and may be either Less than Container Load

(LCL) or Full Container Load (FCL) in nature.

Supply chain services: Supply chain services represent integrated services (including two or more of warehousing, transportation and other value-added services such as packaging, kitting, labelling or technology services such as warehouse management and inventory management systems etc.). This is a more evolved and sophisticated form of logistics service provided by specialised third-party providers and typically focused on specific industry verticals and at large enterprise customers with complex supply chain requirements. Warehousing market demand is driven by the growth in manufacturing, retail, FMCG, e-commerce and logistics sectoRs. Further, supportive government policies such as GST, easy clearances for land, 100% FDI, establishment of logistic parks/Multi-Modal Logistics Parks

(MMLP) and Free Trade Warehousing Zones (FTWZ) are expected to be major drivers for the sector. Value-added/ other services cover a range of activities such as customs clearing, packaging, inventory management, material handling, etc.

Key trends and factors driving growth and structural changes in the Indian logistics industry:

a Economic growth: The IMF has projected a 6.1% and 6.3% growth rate for India in FY23 and FY24, respectively.

The projected growth rate is higher than the growth rate estimated for other emerging and developing Asian countries. Increasing consumption and growth of various businesses are expected to be the major drivers of growth of the logistics industry in India.

a Rising consumer incomes and changing preferences:

Indias per capita GDP reached US$2,389 in 2022 as per World Bank. The middle-income segment with an annual household income range of US$7,500-15,000 is projected to expand from ~27% to ~40% of the population in the next 5-yeaRs. In addition, over 50% of the population is currently under 30 years of age and digitally native, resulting in rapid growth in purchases of products and services online.

a New B2C commerce models: In addition to e-commerce marketplaces, new models like social commerce, omni-channel commerce and direct-to-consumer (D2C) commerce continue to disrupt traditional retail models. Category expansion is also expected to drive growth with segments like consumer durables/white goods, home and furniture rapidly transitioning online. Overall, these structural changes in the consumption economy are expected to increase the demand for reliable logistics and drive the growth of organised logistics playeRs.

a Evolving B2B business models: The emergence of new distribution channels, new go-to-market strategies such as direct-to-retail (D2R) and direct-to-consumer (D2C) and government initiatives like Make in India and

Production Linked Incentives are driving the need for greater speed, precision and visibility in traditional B2B supply chain operations.

a Demand for integrated services: With the rollout of GST, enterprises are optimising supply chains for speed and efficiency instead of tax reasons. This shift towards a ‘total-cost approach is driving the demand for third-party players capable of providing integrated warehousing, transportation and technology solutions instead of a multitude of traditional mono line playeRs. In addition, economic growth of Tier 2 cities and beyond is further driving the need for players with deep national capabilities.

a Open Network for Digital Commerce (ONDC): ONDC aims to increase the participation of SMEs and smaller retailers/kirana stores in the e-commerce ecosystem.

Sellers will be able to directly integrate with national-scale logistics players via the ONDC platform, thereby driving up demand for their services.

a Technology-led transformation: The availability of new technology and business intelligence tools are enabling organised logistics companies to solve various problems such as truck utilisation, route consolidation, demand forecasting, facility and infrastructure placement, inventory management and fraud detection. In addition, hardware investments in automated parcel sortation systems, material conveyance systems, AGV/AMR systems, ASRS etc. along with wider penetration of warehouse management systems are improving operational throughput and precision, thereby lowering human errors and operating costs. The use of drones in the logistics sector has also gained momentum and is proving to be beneficial by enabling a wide range of applications.

a Connected logistics: Connected logistics is a set of interdependent communication devices and software that help in gaining real-time information about the goods that are shipped through various modes of transport. It shares relevant data and information related to logistics so as to smoothen the transportation process. Increase in the adoption of Internet of Things (IoT) technologies and sensor-based technologies such as RFID has contributed to boosting the connected logistics market. Further, there is a huge opportunity to leverage advanced connected logistics management on the upcoming 5G network in

India. With ultra-high bandwidth, extremely low latency, massive capacity and increased government focus, 5G is expected to connect everything.

a Eco-logistics: Eco-logistics or green logistics involves the use of more eco-friendly and sustainable processes in order to reduce the environmental impact of logistics.

The adoption of sustainable processes will be one of the vital trends for future growth. With India aiming to achieve net-zero emission across all sectors, logistics companies will have to reduce their carbon footprint.

a Legal environment and government reforms: Measures such as implementation of GST, Logistics Efficiency Enhancement Program, the increased pace of building expressway and highway infrastructure and reforms to axle load limits have directly benefited the logistics sector. Some of the other initiatives undertaken by the government are:

The government launched the national master plan

‘PM Gati Shakti initiative, a multi-modal connectivity for all infrastructure projects pertaining to seven engines (roads, railways, airports, ports, mass transport, waterways, and logistic infrastructure). The government has identified 100 critical infrastructure projects for development in FY24 and has allocated US$9 billion in the FY24 Union Budget. This infrastructure development is expected to result in a decrease in the countrys logistics cost and improve the ease of living and doing business in the country.

Logistics cost in India has been about 14% of GDP against the global benchmark of 8%. In order to address the same, the government launched the

National Logistics Policy (NLP) in September 2022. The targets for achieving the vision of the NLP are to (i) reduce the cost of logistics in India to be comparable to global benchmarks by 2030; (ii) improve the LPI ranking - endeavour is to be among the top 25 countries by 2030, and (iii) create a data-driven decision support mechanism for an efficient logistics ecosystem.

In the Union Budget of 2023, the finance minister allocated US$3.3 billion to the Dedicated Freight Corridor Corporation of India (DFCC). DFCs are a network of broad-gauge freight railway lines, specifically meant to cater to freight trains. The allocated budget is expected to be used for activities such as track renewal, gauge conversion, and setting up new lines, which are expected to develop the freight infrastructure in the country.

T hese measures have facilitated fast and smooth flow of goods, reduced turnaround times and enabled logistics companies to invest in building large-scale and efficient infrastructure.

Key challenges ahead for logistics industry

a Rising fuel prices: Fuel accounts for a major portion of transportation costs for logistics service provideRs. The cost of diesel in India depends on international crude oil prices as India imports a majority of its fuel requirements. During July 2021 to July 2022, there were 76 instances where diesel prices were hiked as compared to 10 instances of price reduction. The fluctuating fuel prices can dramatically impact the logistics industry margins impacting each stakeholder in the value chain. Many logistics companies mitigate this risk by having customer contracts linked to fuel prices.

a Truck driver shortage: Many truck drivers find the profession unattractive due to the lack of security and safety, harsh working conditions, irregular working hours and a long time away from their families. With significant improvement in road infrastructure coupled with new technologies such as ADAS which ensure higher safety, the working conditions for the drivers are improving.

a Reverse logistics cost: Indias e-commerce sector is growing at a rapid pace driven by increased consumer incomes and smartphone penetration. However, one major challenge in the e-commerce sector is the logistics cost. Customers may decide to return the product for various reasons. These reverse logistics result in numerous challenges pertaining to pick-up timings, on-time communication with pick up persons, packaging of products etc. Such activities add complexity to the operations and put an additional cost on the sellers thus affecting the potential growth of the logistics industry.

Financial performance

Analysis of our financial performance for the current and previous financial year is provided below:

( Rs. Mn)

Particulars	March 31, 2023	March 31, 2022
Revenue from contracts with customers	72,253.01	68,822.86
Other income	3,049.48	1,561.41
Total income	75,302.49	70,384.27
Freight, handling and servicing cost	56,694.80	49,801.80
Purchase of and change in inventory of traded goods	15.76	1,721.47
Employee benefit expense	14,000.34	13,132.65
Other expenses	6,058.19	5,889.23
Depreciation and amortisation expense	8,311.44	6,107.47
Finance costs	888.30	995.29
Fair value loss on financial liabilities at fair value through profit or loss	-	2,997.39
Share of profit /(loss) of associate (net)	135.74	(32.27)
Loss before tax	(10,530.60)	(10,293.30)
Tax expense	(452.81)	(183.30)
Loss for the year	(10,077.79)	(10,110.00)
Adjusted EBITDA1	(4,038.66)	464.30

1 Refer to Adjusted EBITDA section below for details

Revenue by service line

We provide a full-range of logistics services including Express Parcel delivery, Part Truckload (PTL) freight, Truckload (TL) freight, Supply Chain Solutions and Cross Border express and freight services. Our service lines are reported as one combined segment - ‘Logistics Services as per Ind AS 108.

Particulars	March 31, 2023	% share	March 31, 2022	% share
Revenue from Express Parcel Services	45,522.22	63.00%	41,910.56	60.90%
Revenue from Part Truck load Services	11,565.38	16.01%	13,459.50	19.56%
Revenue from Truck load Services	4,362.17	6.04%	2,873.50	4.18%
Revenue from Supply Chain Services	7,817.47	10.82%	5,509.93	8.01%
Revenue from Cross Border Services	2,957.68	4.09%	3,182.68	4.62%
Revenue from Sale of Traded Goods	16.54	0.02%	1,876.63	2.73%
Others	11.55	0.02%	10.06	0.01%
Total Revenue from contracts with customers	72,253.01	100.00%	68,822.86	100.00%

Performance highlights

a Total income increased by 6.99% to RS.5,302.49 million for FY23 from RS.0,384.27 million for FY22. Revenue from customers increased by 4.98% to RS.2,253.01 million for FY23 from RS.8,822.86 million for FY22. FY23 operating volumes in Part Truckload services and the resultant overall financial performance were impacted due to certain challenges faced during Rs. FY23 in relation to the integration of Spoton and Delhiverys networks.

a Revenue from Express Parcel services increased by 8.62% to RS.5,522.22 million for FY23 from RS.1,910.56 million for FY22. Express Parcel shipment volume increased by 13.93% to 663.4 million parcels for FY23 from 582.2 million parcels for FY22.

a Revenue from Part Truckload services decreased by

14.07% to RS.1,565.38 million for FY23 from RS.3,459.50 million for FY22. Freight volume decreased by 30.29% to 1,100,757 tonnes for FY23 from 1,579,096 tonnes for FY22

(pro forma for Spoton) due to certain challenges faced during Rs. FY23 in relation to the integration of Spoton and Delhiverys networks. We acquired Spoton, a leading Part Truckload services provider in India, during FY22 and the financials of Spoton were consolidated with ours beginning on August 24, 2021.

a Revenue from Truckload services increased by 51.81% to Rs.,362.17 million for FY23 from Rs.,873.50 million for FY22.

a Revenue from Supply Chain services increased by 41.88% to Rs.,817.47 million for FY23 from Rs.,509.93 million for FY22.

a Revenue from Cross-Border services decreased by 7.07% to Rs.,957.68 million for FY23 from Rs.,182.68 million for FY22.

a Loss for the year decreased to RS.0,077.79 million for FY23 from Rs. 10,110.00 million for FY22.

Operating costs

We continue to achieve cost efficiency in our operations through process improvements, increasing scale and continued integration of our various logistics service offerings. Key components of our operating costs include:

Freight, handling & servicing costs

Our freight, handling and servicing costs increased by 13.84% to RS.6,694.80 million for FY23 from RS.9,801.80 million for FY22 due to an increase in Express Parcel volumes, network expansion and inflation. Despite continuous cost optimisation measures, our freight, handling and servicing costs increased as a percentage of revenue from contracts with customers to 78.47% for FY23 from 72.36% for FY22 due to reduction in PTL revenue on account of certain challenges faced during Rs. FY23 in relation to the integration of Spoton and Delhiverys networks.

Employee benefits expense

Our employee benefits expense increased by 6.61% to RS.4,000.34 million for FY23 from RS.3,132.65 million for FY22. The increase was on account of increase in our employee headcount and increments paid to existing employees. In order to reward high performance as well as to improve retention, 3,557 long-tenured last-mile delivery offroll personnel were converted to our full-time employees during FY23. Our employee benefits expense increased as a percentage of revenue from contracts with customers to

19.38% for FY23 from 19.08% for FY22.

Other expenses

Other expenses include expenses such as allowances for doubtful debts, travelling and conveyance, cash management service charges, software and technology expenses, repairs and maintenance etc. Other expenses increased by 2.87% to Rs.,058.19 million for FY23 from Rs.,889.23 million for FY22 due to an increase in our operating volumes. Other expenses decreased as a percentage of revenue from contracts with customers to 8.38% for FY23 from 8.56% for FY22.

Other costs

Depreciation and amortisation expense

Our depreciation and amortisation expense increased by 36.09% to Rs.,311.44 million for FY23 from Rs.,107.47 million for FY22, primarily due to an increase in tangible assets on account of network and fleet expansion, full year impact of amortisation of Spoton assets in FY23 which was only for the partial period in FY22 and accelerated amortisation of intangible assets e.g. vendor relationships and intellectual property acquired from Spoton.

Finance cost

Our finance cost decreased by 10.75% to RS.88.30 million for FY23 from RS.95.29 million for FY22, primarily due to reduction in availed banking facilities and decrease in interest on lease liabilities during FY23.

Fair value loss on financial liabilities at fair value through profit or loss

We had a non-cash fair value loss on financial liabilities at fair value through profit or loss of Rs.,997.39 million for FY22, primarily due to an increase in the fair market value of CCPS as per the terms of these CCPS in accordance with Ind AS

109 and Ind AS 32 accounting standards. This did not affect the Companys cash flows. All CCPS were converted to equity shares during FY22 and therefore we did not have this expense in FY23.

Adjusted EBITDA

In evaluating our business we consider and use adjusted EBITDA, a non-GAAP measure, that eliminates expenses that are non-cash, non-recurring or non-operating in nature and thus acts as a measure of recurring operating profitability of our business. We believe adjusted EBITDA helps us identify underlying trends in our business economics and facilitates evaluation of operating performance by eliminating non-cash, non-recurring or non-operating items over multiple periods. We also believe that this provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key metrics we use for financial and operational decision-making. The below table provides a reconciliation of our Revenue from contracts with customers to adjusted EBITDA.

Rs. Mn

Particulars	MarcRs.1,2023	MarcRs.1,2022	Remarks
Revenue from contracts with customers	72,253.01	68,822.86
Less: Freight, handling and servicing cost	56,694.80	49,801.80
Less: Purchase of and change in inventory of traded goods	15.76	1,721.47
Less: Employee benefits expense	14,000.34	13,132.65
Less: Other expenses	6,058.19	5,889.23
EBITDA	(4,516.08)	(1,722.28)
Add: Share based payment expense	2,891.41	3,084.21	Accounting expenses towards ESOPs already granted
Add: One-time discontinued cost	-	1,784.00	One-time discontinued expense on account of certain employee payments
Add: IPO expense	164.77	-	IPO related non-operating expenses
Less: Actual lease rent paid	2,578.76	2,681.63	Actual cash rent paid on leased properties recognised under Ind AS 116
Adjusted EBITDA	(4,038.66)	464.30
Adjusted EBITDA margin	(5.59)%	0.67%

Our adjusted EBITDA was impacted adversely during FY23 on account of certain challenges faced during Rs. FY23 in relation to the integration of Spoton and Delhiverys networks. Our adjusted EBITDA turned positive during Q4 FY23, underlining the significant operating leverage in our business.

Our quarterly profitability trends vary during the fiscal year, with Q1 and Q2 profitability typically impacted by investments that we undertake in capacity addition as well as by inflationary impact on input costs e.g. increase in employee wage costs due to annual increments, annual increase in rentals etc. Q3 and Q4 profitability is typically higher, with capacity additions of Q1 and Q2 getting better utilised as volumes grow through the year. Q3 and Q4 profitability is also aided by the seasonality underlying our businesses. Q3 is typically the period in which our major Express Parcel customers undertake festive sales and Q4 is typically the period in which our Part Truckload customers experience high volumes due to fiscal year-end.

Key financial ratios

Keyfinancialratiosforthecurrentandpreviousfinancialyearareprovidedbelow:

	MarcRs.1,2023	MarcRs.1,2022
Adjusted EBITDA Margin (operating profit margin)	(5.59)%	0.67%	AdjustedEBITDAmarginisameasureofacompanysoperatingprofit,excludinganynon cash or non-recurring operating costs, as a percentage of its revenue. Our adjusted EBITDA margin reduced by 626 bps from FY22 to FY23 due to certain challenges faced during Rs. FY23 in relation to the integration of Spoton and Delhiverys networks. Please Refer to the Adjusted EBITDA section above for details.
Profit After Tax Margin	(13.38)%	(14.36)%	Profit After Tax margin is a measure of a companys net profit as a percentage of its total income. Our Profit After Tax margin increased by 98 bps in FY23 primarily on account of (i) reduction in certain non-cash, non-recurring costs such as fair value loss on financial liabilities through profit or loss, (ii) one-time payment to employees in FY22 and (iii) increase in other income.
Debt-Equity Ratio	0.02	0.06	Debt-Equity Ratio is a measure of a companys financial leverage, calculated as division of total borrowings by its total shareholders equity. Our Debt-Equity Ratio improved in FY23 on account of increase in equity share capital base of our Company as a result of primary capital raised through an initial public offering during FY23.
Receivables Turnover Ratio	7.47	8.69	Receivables Turnover is a measure of a companys effectiveness in collecting receivables from its customers and is calculated by dividing total revenue by average trade receivables. The Receivables Turnover Ratio reduced during FY23 primarily due to reduction in revenue from Part Truckload Services.
Current Ratio	5.42	2.63	Current Ratio is a measure of a companys ability to meet its short-term obligations and is calculated by dividing current assets by current liabilities. Our Current Ratio improved during FY23 due to a 75.48% increase in current assets on account of increase in cash & equivalents, other bank balances and other financial assets and a 14.70% reduction in current liabilities on account of decrease in borrowings, trade payables and other current liabilities.
Return on Networth	(13.32)%	(22.99)%	Return on Networth is a measure of a companys profitability and is calculated by dividing the Profit After Tax of the company by average shareholders equity. The change in Return on Networth from FY22 to FY23 was primarily because our networth increased in FY23 to RS.1,771.37 million from Rs. 59,573.69 million in FY22 on account of an increase in equity share capital base of our Company as a result of primary capital raised through an initial public offering during FY23.
Inventory Turnover Ratio	NA	NA	Inventory Turnover is a measure of a companys effectiveness in converting its inventory into sales and is calculated by dividing total revenue by average inventory. Since we are a services Company and do not manufacture goods for sale, our inventory comprises items for internal consumption in our operations and is not raw materials inventory for production or finished goods inventory for sale, the Inventory Turnover Ratio is not applicable to us.
Interest Coverage Ratio	NA	NA	Interest Coverage Ratio is a measure of a companys ability to meet its interest obligations on its outstanding debt from its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and is calculated by dividing EBITDA by interest expense. We had an EBITDA loss for FY23 and FY22 and therefore the Interest Coverage Ratio is not meaningful. However, our finance costs were Rs. 888.30 million and RS.95.29 million for FY23 and FY22 respectively, while we had cash, cash equivalents and investments of RS.5,083.02 million as at end of FY23 and RS.5,123.51 million as at end of FY22.

Capital expenditure

We operate an asset-light business model wherein we extend our logistics services by enabling network partners such as fleet owners, franchisees, retail partners and delivery agents to provide us access to their physical assets and resources such as infrastructure and fleet. Therefore, we do not incur any capital expenditure towards ownership of real estate and own only a portion of the fleet that is deployed in our network. Our capital expenditure is focused towards investing in fit-out infrastructure, state-of-the-art (a major share of it is in our integrated mid-mile) automation and IT assets and tractor-traileRs. Automation includes parcel sorter systems, bag sortation systems, conveyance systems and future-ready technologies such as automatic guided vehicles, automatic storage and retrieval systems and unmanned aerial vehicles. Such investments enable us to achieve further speed, efficiency and precision in our operations. The investments in capacity i.e. building the right infrastructure and automation are done to ensure we are able to capture multiple growth opportunities that the market presents us in the near future.

During FY23, we capitalised Rs.,703.77 million of property, plant and equipment and intangible assets, excluding additions through acquisition and excluding any disposals.

Capital work in progress was Rs. 215.28 million and intangible assets under development were Rs.19.44 million as at end of FY23.

Some of the major capital expenditure projects we undertook during FY23 include:

a Commenced installation of our largest box sorter at our upcoming new mega gateway at Bhiwandi to automate freight handling in our operations. This sorter will also be the first to automate outbound truck loading for high-volume contributing connections. The new Bhiwandi gateway is expected to go live during FY24 and will be our largest gateway, spread across 0.67 million sq.ft.

a Commissioned at Tauru gateway, our first fully automated box sorter to automate freight handling (sorting and intra-facility movement) in our operations

a Commissioned four new cross-belt sorters to augment

Express Parcel sorting capacity in our network

a Commissioned twelve new Fulfilment Centres across multiple locations pan India with an area footprint of

0.87 million sq.ft.

a Commissioned pallet racking and multi-tier shelving systems in our Fulfilment Centres at multiple locations to increase inventory storage capacity

a Deployed 96 tractors (46 ft.) and 426 trailers to further increase the share of trailer capacity in our linehaul network

The capital expenditure for vehicles was funded primarily from borrowings from financial institutions. The remaining capital expenditure was funded through internal accruals and available cash.

Inorganic investments

We undertake selective investments, acquisitions and other strategic initiatives within and outside India, which complement our product and service offerings, enable us to build new capabilities, strengthen or establish our presence in our target markets, or enable us to gain access to technology.

During FY23, we undertook following acquisitions and investments:

a We acquired a minority stake in BoxSeat Ventures Private Limited, to scale-up fulfilment services for D2C sellers and brands

a We acquired Algorhythm Tech Private Limited, a supply chain software company, to enhance our Supply Chain Solutions offering with value added services and also drive cost optimisation in service delivery

Liquidity

We continue to remain extremely well capitalised, which we believe, is a significant competitive advantage in a high-growth logistics market like India. We raised net proceeds of RS.8,703 million through an initial public offering in May, FY23 which significantly enhanced our liquidity position. A significant portion of our cash is invested in low risk treasury investments such as fixed deposits, debt mutual funds, debentures and bonds. We had cash of RS.5,083.02 million as at end of FY23 which included cash & cash equivalents, bank balances, investments, margin money deposits and deposits with original maturity of >12 months. We will continue to deploy our cash for organic and inorganic growth in our business.

Borrowings

We have availed borrowings from financial institutions for purchase of vehicles, for our working capital requirements and for general corporate purposes. We had outstanding borrowings of Rs. 1,988.74 million as at the end of FY23. Our Debt-Equity Ratio was 0.02 as at the end of FY23.

Corporate Social Responsibility (CSR)

We undertook CSR activities on voluntarily basis during FY 2022-23 though we were not mandatorily required to spend any amount on CSR activities during FY 2022-23 in view of absence of profits during three immediately preceding financial yeaRs. We contributed RS.0.00 million towards Olympic Gold Quest, which is an initiative under the

Foundation for Promotion of Sports and Games. Refer to the annexure-5 of the Directors report for more details on our Companys CSR activities.

Risks/threats to the industry and our business

The logistics industry, including Delhivery, faces numerous risks that can impact our business in various ways:

1. Political, macroeconomic and demographic changes could adversely affect economic conditions in India thus impacting the logistics industry. Since we derive a majority of our revenue from contracts with customers in India, such risks may impact our earnings.

2. Natural disasters, epidemics, pandemics, acts of war, geo-political tensions, terrorist attacks and other events could materially and adversely impact the industry and hence our business.

3. Any deficiency in Indias road network and telecommunication, internet, air cargo and airport infrastructure could impact the functioning of our business operations and technology systems.

4. Changes in the taxation system in India could adversely impact our business, impacting our cash flows and financial condition.

5. Rising fuel prices and inflationary pressures on wages and assets can impact our cash flows and profitability.

6. Inability to attract and retain suitably qualified and skilled employees, labour unrest or union activities, increase in the costs of labour or failure to comply with applicable labour laws could negatively affect our operations and earnings.

7. Any disruption to our logistics and transportation facilities could have an impact on our business operations and hence our cash flows.

8. Reliance on partners and other third parties for certain aspects of our business such as first-mile, mid-mile, last-mile services, contractual manpower, fleet etc. poses additional risks to our operations and financial condition.

9. As our proprietary technology infrastructure is critical to our operations, any disruptions to our technology infrastructure could impact our business operations.

10. Although we continue to diversify our customer base, e-commerce customers contribute a significant portion of our volume and revenue. Accordingly, our business growth is significantly correlated with the growth of e-commerce and more generally, commerce, in India.

11. Due to the nature of the industry, a significant portion of our business is driven by a few large customers across multiple services they obtain from us. Their future actions may have an adverse impact on our business.

Internal control systems

A robust framework of internal controls has been documented and implemented across our business processes to facilitate efficient business operations and achieve our compliance and reporting objectives.

Our internal control systems are commensurate with the nature of our business and the size and complexity of our operations. The Audit Committee, composed of Independent and Non-Executive Directors, regularly reviews significant audit findings, adequacy of internal controls, audit plans, reasons for changes in accounting policies and practices, if any, and monitors the implementation of audit recommendations. Design and operating effectiveness of controls are tested by the management annually with the support of external consultants and later audited by the statutory auditoRs. Control testing is carried out as per the Guidance ‘Note on Audit of Internal Financial Controls over

Financial Reporting issued by the Institute of Chartered

Accountants of India (ICAI). The Companys internal control system is further supplemented by an internal audit carried out by PricewaterhouseCoopers Services LLP, a third-party internal audit firm. Internal auditors ensure that preventive and detective controls are embedded in all the business processes. Significant audit observations and follow-up actions thereon are reported to the Audit Committee. In line with our commitment to robust corporate governance and statutory compliances, the Company maintains a stringent framework adhering to legal requirements and implementing best governance practices and upholding ethical practices.

Comprehensive details pertaining to corporate governance and statutory compliance can be found in the Directors

Report and Corporate Governance Report sections.

Development in human resources

We undertook a host of initiatives through FY23 to ensure that the work environment fosters high performance, inclusivity, respect, empathy, and provides opportunities for growth and development.

We increased the headcount of women employees by 14.4% across functions and positions. We identified specific roles that presented opportunities to enhance gender diversity and made a concerted effort to increase the ratio of women in these teams.

The Delhivery Skills Development Programme (SDP) was launched to provide freshers and first-time job seekers across the country an opportunity to start a career in logistics with Delhivery. After a detailed assessment and four weeks of rigorous classroom and practical trainings across Delhivery facilities, we rolled out offers for full-time permanent employment to the successful candidates. We conducted regular town halls and all-hands meetings to ensure transparent communication and a steady stream of two-way communication between the employees and the leadership of the organisation. The FY23 annual employee engagement survey provided an opportunity to understand the pulse of the organisation and we undertook steps to address the feedback received. We launched a Rewards and Recognition program to foster a culture of appreciation across the organisation. The well-being of our employees has always been a key focus area at Delhivery. We launched multiple initiatives this year across our operational facilities and corporate offices focussing on mental health as well as physical wellness.

Under the aegis of the Delhivery Academy, we continued to enable our employees to develop the knowledge, skills and abilities needed for continued growth and success in their roles. Depending on operational requirements and business priorities, employees were put through different types of training modules. We successfully moved a significant number of employees through Internal Job Postings, giving employees an opportunity to develop across roles and enhance their career journeys.

These initiatives are detailed further as part of the

‘Our People section of this Annual Report.

Accounting treatment following NCLT Order

Pursuant to Scheme of Arrangement (‘the Scheme) between Vankatesh Pharma Private Limited (‘the transferor company) and Spoton Logistics Private Limited (‘the Transferee company which is a wholly-owned subsidiary of Delhivery

Limited) and their respective shareholders under section 230 to 232 read with Section 66 of the Companies Act, 2013 ("the

Act") and the rules made thereunder, Spoton Logistics Private Limited had amalgamated with Venkatesh Pharma Private

Limited under the Scheme of Arrangement approved by NCLT on November 27, 2019 under the provisions of the Companies Act, 2013. Accordingly, the Scheme was accounted for in accordance with erstwhile applicable Accounting Standard

14 ‘Accounting for Amalgamations. Goodwill arising from

Business Combinations has been amortised over a period of five years in accordance with method as prescribed under

NCLT scheme, which overrides the relevant requirements of Ind AS 103 ‘Business Combinations and Ind AS 36 ‘Impairment of assets (according to which acquired Goodwill is not permitted to be amortised and is required to be tested annually for impairment). The aforesaid treatment has been disclosed in the Note 35 (1) (c) to the audited consolidated financial results of the Company.

Cautionary statement

Statements in this ‘Management Discussion and Analysis and this Annual Report describing the Companys vision, projections, estimates, expectations, plans or predictions or industry conditions or events may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results, performance or achievements could differ materially from those expressed or implied.

Several factors could make a significant difference to the

Companys operations. These include economic conditions affecting demand and supply, government regulations and taxation, natural calamities, pandemics etc. over which the Company does not have any direct control.