Entering Rapid Commerce And Expanding PTL Business Will Strengthen Future Market Share

Key Takeaways

• Strategic fleet cost optimization and PTL business expansion are set to improve margins and boost revenues, positively impacting EBITDA and net earnings.
  
• Entry into rapid commerce and infrastructure investments position Delhivery for growth in express delivery with enhanced operating leverage and cash flow utilization.
  
• Intense competition, cost inflation, and external pressures may compress Delhivery's margins and limit potential revenue growth in a challenging industry landscape.

Catalysts

Provides supply chain solutions to e-commerce marketplaces, direct-to-consumer e-tailers, enterprises, FMCG, consumer durables, consumer electronics, lifestyle, retail, automotive and manufacturing industries in India.

• Delhivery is poised for potential margin improvement in its Express Parcel business by optimizing fleet costs and leveraging fixed contracts, which could enhance service EBITDA margins towards the 17% to 20% range, directly impacting net margins.
  
• The company's focus on expanding its PTL (Part Truckload) business with a target growth of 25% to 30% for the next financial year could significantly boost revenues and contribute positively to overall EBITDA, benefiting earnings.
  
• Delhivery's entry into the rapid commerce segment with planned expansion of dark stores across major cities aims to capture additional market share in express delivery, providing a new revenue stream with similar margin structures to its core business.
  
• The possibility of increased third-party logistics outsourcing by major e-commerce players, as insourcing becomes a financial burden, could lead to higher volume growth for Delhivery, enhancing revenues and generating better operating leverage, positively impacting earnings.
  
• Delhivery's strategic infrastructure investments are largely in place, suggesting that future CapEx will be maintenance-focused, allowing more cash flow towards profitability and potential capacity utilization improvements, positively affecting net margins and earnings.
  

Delhivery Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delhivery's revenue will grow by 14.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 7.3% in 3 years time.
• Analysts expect earnings to reach ₹9.7 billion (and earnings per share of ₹12.12) by about March 2028, up from ₹210.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.3x on those 2028 earnings, down from 921.4x today. This future PE is greater than the current PE for the IN Logistics industry at 24.9x.
• Analysts expect the number of shares outstanding to decline by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.21%, as per the Simply Wall St company report.

Delhivery Future Earnings Per Share Growth

Risks

• Continued muted growth in online commerce volumes and overall industry headwinds could limit revenue growth. (Impact: Revenue, Earnings)
  
• Slight decline in Part Truckload (PTL) business revenue on a quarter-on-quarter basis, indicating potential variability in one of their key segments. (Impact: Revenue, Net Margins)
  
• Inflation in fleet costs and increases in fixed costs, such as the Bangalore facility going live, have compressed margins and could continue to impact profitability. (Impact: Net Margins)
  
• Insourcing by platforms like Meesho could further reduce the available profit pool for third-party providers like Delhivery. (Impact: Earnings)
  
• Intense competition and high cumulative losses in the express delivery industry might necessitate price reductions to retain customers, potentially leading to compressed margins. (Impact: Net Margins, Earnings)

Valuation

• The analysts have a consensus price target of ₹409.667 for Delhivery based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹500.0, and the most bearish reporting a price target of just ₹285.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹133.5 billion, earnings will come to ₹9.7 billion, and it would be trading on a PE ratio of 45.3x, assuming you use a discount rate of 13.2%.
• Given the current share price of ₹260.96, the analyst price target of ₹409.67 is 36.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.