Automation And Protectionism Will Erode Margins In Indian Logistics

Key Takeaways

• Rising automation, global competition, and environmental regulations threaten Delhivery's cost edge, margins, and growth prospects.
  
• High capital intensity and industry consolidation may further compress profitability and expose Delhivery to top-line and margin volatility.
  
• Strong parcel growth, operational efficiency, disciplined pricing, tech investments, and a favorable industry landscape position Delhivery for sustainable revenue, margin, and return expansion.

Catalysts

Provides supply chain solutions in India.

• The accelerating adoption of automation and AI in the logistics sector may level the cost advantage that Delhivery currently enjoys, opening the door to global players, intensifying competition, and ultimately reducing Delhivery's future ability to sustain revenue growth and robust margins as market share becomes harder to defend.
  
• Any significant escalation of global economic protectionism or deglobalization trends can dampen cross-border ecommerce flows, creating a structural overhang on Delhivery's international logistics business and limiting top-line expansion from high value, cross-border segments.
  
• Ongoing and future tightening of environmental regulations and the introduction of carbon taxation across India and global markets will increase compliance-related costs, further elevating Delhivery's capital intensity and squeezing net margins unless the company executes costly, large-scale upgrades to its vehicle fleet and infrastructure.
  
• A failure to structurally improve last-mile delivery profitability, driven by persistently high costs of labor, warehousing, and recurring technology investments, risks keeping net margins compressed for an extended period-potentially delaying sustained earnings growth despite revenue increases from integration of acquisitions like Ecom Express.
  
• The continued consolidation and integration among logistics and e-commerce platforms could erode Delhivery's bargaining power and pricing flexibility, making it vulnerable to volume concentration with large clients and exposing the company to heightened topline volatility and gross margin compression as industry power dynamics shift.

Delhivery Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Delhivery compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Delhivery's revenue will grow by 12.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.2% today to 5.2% in 3 years time.
• The bearish analysts expect earnings to reach ₹6.8 billion (and earnings per share of ₹9.16) by about September 2028, up from ₹2.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 62.4x on those 2028 earnings, down from 179.5x today. This future PE is greater than the current PE for the IN Logistics industry at 22.9x.
• Analysts expect the number of shares outstanding to grow by 2.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.6%, as per the Simply Wall St company report.

Delhivery Future Earnings Per Share Growth

Risks

• The rapid and sustained growth in parcel volumes, particularly due to higher-than-expected retention from the Ecom Express acquisition and ongoing market share gains, suggest that Delhivery's revenue growth trajectory is stronger than previously anticipated and could remain robust over the long term.
  
• The company is demonstrating significant improvements in operational efficiency and network utilization, absorbing higher package volumes with minimal infrastructure expansion, which is driving notable EBITDA and PAT margin expansion and creating the potential for further net margin improvements as volumes continue to scale.
  
• Delhivery's disciplined pricing environment, together with industry consolidation and its reputation as a reliable, high-quality logistics network, is eroding the prior risks of irrational pricing wars, thereby stabilizing yields and supporting sustainable earnings growth over future years.
  
• Continued investment in automation, technology integration, and service diversification-such as the scaling of PTL, Supply Chain Services, and new rapid commerce initiatives-are expanding the addressable market and creating new, recurring revenue streams, which may drive both top-line and bottom-line improvements.
  
• The secular trend of flight to quality in Indian logistics, combined with increasing digitization, formalization of SMEs, and government investment in logistics infrastructure, create a favorable long-term industry backdrop that supports Delhivery's potential to maintain high asset turns, expand margins, and generate materially higher returns on capital employed.

Valuation

• The assumed bearish price target for Delhivery is ₹362.4, which represents two standard deviations below the consensus price target of ₹478.12. This valuation is based on what can be assumed as the expectations of Delhivery's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹600.0, and the most bearish reporting a price target of just ₹350.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹130.0 billion, earnings will come to ₹6.8 billion, and it would be trading on a PE ratio of 62.4x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹478.0, the bearish analyst price target of ₹362.4 is 31.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.