ICICI Securities predicts 42% rise in Delhi stocks, recommends ‘buy’ – key reasons

Shares of logistics service provider Delhivery have been facing significant selling pressure from investors since August 2022 and are trading below their IPO price ₹487. In May, the company’s shares fell by 14.23 percent, and although they saw a partial recovery in the following months, they still failed to exceed their May highs.

Domestic brokerage firm ICICI Securities has identified several key factors contributing to the stock’s underperformance. These include a slowdown in the third-party logistics (3PL) market, exacerbated by insourcing growth in Meesho; rapid growth in fast-paced e-commerce where logistics are typically managed in-house; and rising market share among some competitors in the 3PL space.

Despite these challenges, the broker notes that Delhivery is consolidating its leadership position in the express delivery market by controlling costs and improving service quality. In the Part Truckload (PTL) segment, Delhivery is gradually approaching 90 per cent of Delhivery and Spoton’s combined volumes and achieving profitability at the service EBITDA level from Q4 FY24.

As a result, the brokerage house maintains a “buy” recommendation for the stock, setting the target price at ₹600 per unit, suggesting a potential upside of 42 percent over the last closing price ₹423.

Market dynamics favor Delhi

The broker recently met with the company’s management, who shared their insights on the market dynamics. The management said the ongoing insourcing of Meesho could pose significant challenges to some of its competitors, potentially leading to market consolidation that could benefit Delhivery.

They explained that disaggregation only works when you partner with companies that have lower cost structures in certain parts of the value chain. Since Delhivery sees itself as a cost leader across all segments, it doesn’t intend to list its services on platforms like Valmo.

The brokerage, citing the management, noted that Delhivery’s value proposition in the Part Truckload (PTL) sector lies in its wide and fast reach with high-quality service. While most PTL companies limit their networks to 4,000-5,000 pincodes due to density requirements, Delhivery’s e-commerce operations clock close to 19,000 pincodes across the country daily.

The management also informed the brokerage that Delhivery is exploring opportunities in quick commerce (QC), leveraging its strengths in warehousing, distribution and last-mile logistics for online brands. However, the company has no plans to compete in the 15-minute delivery ecosystem. According to the management, clarity on monetization of its SaaS business is expected in fiscal 2026.

As of March 31, 2024, Delhivery operated 29 automated sortation centers with 41 sorters, with a monthly sorting capacity of approximately 213 million pieces. This figure does not include an additional 20 smaller sorters. The efficiency of a logistics network is measured by sorting capacity, not just the number of sorters or centers.

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