iifl-logo-icon 1
IIFL

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

Delhivery: A pricey bet on growth

19 Jan 2024 , 11:53 AM

Recommendation: Sell; Target price: Rs 325

 

Delhivery is one of IIFL’s top sell ideas for CY24 as analysts of IIFL Securities do not see risk-reward being favourable, despite a ~45% correction in stock price from the peak. Management, backed by investments in technology, vast network, etc., plans to scale up the B2B business while moderating aggression in B2C, where it has less pricing freedom. Through FY24-26, it should grow sales at best in sync with the industry, with an inferior operating matrix and capex > OCF. Meanwhile, valuations price in 60-65% p.a. growth in FCF (reverse DCF, terminal growth of 5%) through FY28-37. Massive execution surprises are key to the stock’s OPF hereon. 

Growing in sync with others: 

Through FY24-26, Delhivery’s sales growth is seen at 16% p.a., driven by the B2B segment vs core B2C (63% of sales), as other smaller segments such as SC and FTL scale up. Analysts of IIFL Securities note that while B2B has a long runway for growth, Delhivery has to offer a fine balance between costs, quality, and pricing to establish itself as a reliable logistics partner. Moreover, sales growth should mirror established players in the sector with impeccable operating matrix and return ratios, and to that extent, whether such a pivot in strategy works, needs to be seen. 

Assume improved operating matrix: 

Through FY24-26, analysts of IIFL Securities assume Delhivery to cut down cost-to-income ratio by ~500bps, when incumbents struggle. Its asset light model has less scope to offer any material operating leverage, for which the improvement in Ebitda (adjusted) margins from 0.1% to 2.2% in FY26, is backed by pricing gains. This remains a daunting task; however, analysts of IIFL Securities give benefit to Delhivery given its vast network, investments in technology, and management’s commitment towards profitable growth. Periodic entry of new entrants, given a long runway for growth, will likely be an overhang for incumbents; particularly in B2B and supply chain segments that are growing faster than FTL. 

Yet, payoffs are not favourable: 

Delhivery has guided to invest 5-6% of sales to grow its network, lower costs, and gain market share. Capex through FY26 > OCF during the same period (~Rs3bn p.a.). Analysts of IIFL Securities see the stock to re-rate, provided there are execution surprises. On a reverse DCF, the stock is pricing in 60-65% p.a. growth in FCF through FY28-37; they do not see risk-reward as favourable; maintain SELL.

Related Tags

  • Delhivery
sidebar mobile

BLOGS AND PERSONAL FINANCE

Read More

Most Read News

Indian markets close the day in red
29 May 2024|04:50 PM
Power Mech gets new order of Rs 563.23 crore
29 May 2024|04:52 PM
Man Industries gets new orders of ₹490 Crore
29 May 2024|05:18 PM
Read More
Knowledge Centerplus
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Knowledge Centerplus

Follow us on

facebooktwitterrssyoutubeinstagramlinkedin

2024, IIFL Securities Ltd. All Rights Reserved

ATTENTION INVESTORS
  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

RISK DISCLOSURE ON DERIVATIVES
  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

plus
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.