Delhivery reaches its highest level since becoming public; the stock has increased 12 percent in jus
Shares of Delhivery Ltd. have increased by 12% over the last three days on expectations that capacity investments will drive the company's operational performance moving forward. On Thursday, shares of Delhivery Ltd. reached their highest level on the BSE, reaching Rs. 617, which is 9% higher than Rs. 586 (the IPO listing price).
Since being listed on May 24, 2022, the logistics services provider's stock price has never been higher. At these prices, Delhivery is 20% over its initial share issuance price of Rs. 487. On the first day of trading, the stock's low was Rs 474.
Delhivery stated that the majority of the investments made by the company in FY22 were towards expanding capacity and capabilities in the form of CAPEX (around 7% of revenues in FY22), as well as investments in inorganic growth, in addition to investments for working capital requirements.
According to the corporation, these expenditures are expected to increase productivity and drive scale, which will lower delivery costs and shorten turnaround times.
Express parcel volumes at Delivery increased by 101 percent in FY22, greatly exceeding the industry's volume growth of about 40%, it added.
In a post-earnings call with ET, Delhivery cofounder and CEO Sahil Barua and chief business officer Sandeep Barasia stated that the company's operating leverage will begin to pay off even as it pursued growth.
"At an operational level, our aims of growth and profitability do not conflict. If you are losing money at the unit level, that presents issues for investors, according to Barua in an interview. We are now investing in CAPEX. For the upcoming fiscal year 2022, the revenue has decreased to 6.2%. We anticipate that it will stabilize at just about 5%. Our operating Ebitda is very nearly 4%. Therefore, the corporation begins to produce cash flows when operational EBITDA exceeds capital expenditures.
The logistics giant raised Rs. 5,235 crores through its initial public offering (IPO), to use Rs. 2,000 crore of the proceeds to finance growth initiatives, Rs. 1,000 crore for inorganic growth through acquisitions or strategic alliances, and Rs. 1,000 crores for general corporate purposes.
What Should Investors Do Now?
With an outperform rating and a target price of Rs675, Credit Suisse has started monitoring the situation. The foreign brokerage also added that diversified growth (e-commerce + broader logistics) and potential merit as an internet play vs. others are important as well. This justification was based on favorable industry structure, structural growth (30%+) in e-commerce volumes, strong moat and leadership in existing scale, network, and technology, and recent breakeven. Credit Suisse forecasts a revenue CAGR of at least 29% for the period of FY22 to FY25, with an increase in profitability to a 5.5% adj. EBITDA margin from FY22 onward. Delhivery trades at 42x adj. EV/EBITDA for the FY25E.
In a separate report, IIFL began coverage of Delhivery with a "sell" rating and a target price of Rs 442/share because valuations in the smooth strategy execution, which involves rapidly scaling up revenues, controlling costs, reducing yields, and turning profitable in a sustainable way, appear to be increasing.