Expanding Delivery Capacities And Digital Innovations Will Propel Future Earnings Growth

Key Takeaways

• Expanding delivery capacities and new service launches could significantly boost revenue and market share.
  
• Investments in digital solutions focus on enhancing operational efficiency and customer satisfaction, potentially improving net margins.
  
• Heavy reliance on festive volumes and investments in capacity may not translate into growth, impacting operational leverage and compressing margins.

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.

• Expansion of delivery capacities for the peak festive season, which could lead to increased handling capability and thus potentially boost revenue and market share.
  
• Continued growth and industry-leading performance in the Part Truckload (PTL) business, which could improve revenue as the PTL segment accounts for a growing percentage of total revenues.
  
• The plan to launch new services including a third-party rapid commerce service, expanded regional surface shipping and national air shipping options, and a larger aggregator reseller franchise, all of which could drive future revenue growth.
  
• Investments in digital solutions, such as address disambiguation and return-to-origin reduction services, aimed at increasing delivery efficiency and customer satisfaction, potentially improving net margins.
  
• A well-capitalized balance sheet with over ₹5,488 crores in cash, providing financial flexibility to invest in growth opportunities and possibly leading to enhanced earnings.

Delhivery Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delhivery's revenue will grow by 15.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.1% today to 6.4% in 3 years time.
• Analysts expect earnings to reach ₹8.5 billion (and earnings per share of ₹7.25) by about January 2028, up from ₹78.0 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 88.6x on those 2028 earnings, down from 3315.2x today. This future PE is greater than the current PE for the IN Logistics industry at 25.2x.
• Analysts expect the number of shares outstanding to grow by 16.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.84%, as per the Simply Wall St company report.

Delhivery Future Earnings Per Share Growth

Risks

• Delhivery's growth in the Express Parcel business is slowing down, with only 3% year-on-year growth in Q2 FY25, largely affected by consumption slowdown and competition (Revenue impact).
  
• Declining service EBITDA margins in the Express business from 18% to 15% reflect pressure on cost efficiencies and profitability due to capacity expansion and operational costs (Net margin impact).
  
• Potential difficulties in addressing labor market challenges, impacting delivery logistics and costs, could lead to increased operational expenses (Earnings impact).
  
• Heavy reliance on festive season volumes and investments in capacity that may not translate into matching revenue growth could impact operational leverage (Earnings impact).
  
• Competitive pressures and significant investments in capacity ahead of demand growth may compress margins, as seen in third-party quicker delivery solutions or market cannibalization by captives (Net margin impact).

Valuation

• The analysts have a consensus price target of ₹447.38 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 ₹525.0, and the most bearish reporting a price target of just ₹361.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹132.5 billion, earnings will come to ₹8.5 billion, and it would be trading on a PE ratio of 88.6x, assuming you use a discount rate of 12.8%.
• Given the current share price of ₹348.4, the analyst's price target of ₹447.38 is 22.1% 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.