Q2FY24 Review: Delhivery: PTL rocks, E-com drops

6 Nov 2023 , 01:56 AM

Delhivery’s Q2FY24 sales growth was only 8% YoY, while Ebitda/ PBT losses sustained; adjusted for ESOP/IndAS, Ebitda was -0.7% vs -7% YoY (SpotOn debacle), -1.3% QoQ. Delhivery sees revenue growth of 15-20% p.a. and margins of 18% (vs 10% now) before O/h, ESOP, etc, with no specific timelines. Analysts of IIFL Capital Services cut their revenue/ Ebitda estimates by ~10%/30% for FY25/26; visibility on FY26 is less; FCF is not forecast until FY27; valuations are hopeful; SELL. 

Sales growth only 8% YoY: 

Delhivery’s Q2FY24 sales growth of 8% was driven by a recovery in PTL (up 27% YoY, on a lower base), and growth in truckload business (up 46% YoY); the flagship B2C (e-com express) business grew only 8% YoY despite a 12% YoY growth in shipments. Reported/adjusted Ebidta losses sustained, while there was an improvement in adjusted Ebitda margins on the back of a recovery in PTL, where volumes/realisations were up 22%/5% YoY, as SpotOn integration gathers momentum. Growth in PTL was driven by SMEs in non-metros. 

Focus on sustainable growth: 

Sahil Barua, Delhivery founder during the earnings call stated that -1) e-com shipments should grow 15-20% p.a. over the medium term on the back of D2C, where it has an advantage; Q3 should be seasonally strong (festive season); 2) to grow PTL segment it would focus on both SMEs and large corporates; India, however, is a SME driven market; 3) Supply chain management should not be analysed on QoQ basis, as revenue/earnings are sensitive to ramp up in contracts; 4) no guidance on revenue/adjusted Ebitda, but it targets to earn Ebitda before O/h and ESOP at 18% (10% as of Q2); 5) investments in infra / tractor-trailer, etc. would continue as market reach expands. 

Cut revenue/Ebitda estimates: 

Analysts of IIFL Capital Services lower their revenue growth trajectory through FY24-26 (lower e-com, PTL, SC, etc), and adjust the costs accordingly; FY24 Ebitda/loss is unchanged, as the impact of lower revenue is offset by a change in depreciation policy (from Q1), but Ebitda cut for FY25/26 is ~30%. The adjusted margins are wafer thin; a 50bps change can swing Ebitda by Rs0.5bn and to that extent, earnings have less visibility. Analysts of IIFL Capital Services think Delhivery needs to up its pricing policy to further cut down the cost/income ratio, which may slow its revenue growth, but markedly improve cash flows. In the base case, they do not forecast Delhivery to register FCF until FY27.