Why Delhivery is taking the long way in the era of fast-paced trading

Moreover, the third-party logistics sector in India is facing some headwinds due to increasing competition from established players and online logistics platforms like Meesho opting for their own delivery fleets.

Delhivery is doubling down on improving cost efficiency and service quality in its core express business, which accounted for 62% of its revenue in 2023-24. The company is also exploring solutions like shared dark warehouses or warehousing for its e-commerce clients to improve capacity utilisation and optimise order fulfilment or delivery processes.

Delhivery’s management expects revenue from its express business to grow to 15-20% in fiscal 2025, after growing 12% in fiscal 2024, as the company renegotiates key contracts.

The rapid growth of the QSR sector is further complicating India’s logistics landscape. While some third-party logistics providers are looking to enter this high-pressure space, Delhivery is taking a strategic tack. Rather than competing, it is positioning itself to support QSR companies by offering warehousing, distribution and last-mile logistics solutions. This paves the way for Delhivery to leverage its strengths in established segments and achieve long-term growth without compromising profitability.

The bright spot for Delhivery is the part-truck business, which contributed 19% to FY24 revenues. The business bounced back nicely with volumes growing by 67% in Q1 FY25 compared to two years earlier as Delhivery made significant inroads into business-to-business express logistics, taking market share from unorganised players.

Moreover, with the expansion of its direct sales teams and strengthening of its footprint in tier 1, tier 2 and tier 3 cities, Delhivery is well-positioned to leverage the growing demand for organised logistics solutions.

Delhivery’s key differentiator is its vast network of nearly 19,000 pin codes across India. It covers remote and underserved areas, offering an advantage rooted in the company’s strong e-commerce foundation. Most part-logistics companies cover only 4,000-5,000 pin codes.

Improving margins

Delhivery’s part cargo business became profitable at the Services EBITDA level in Q4 FY24.

Part-load margins have been steadily improving as profitability improves and costs decline – from 2.2% in the March quarter to 3.2% in Q1 FY25. Delhivery’s management aims for the long-term margin in the part-load segment to be in line with the impressive margin of the express segment at 18-20%.

Delhivery’s overall margin was also boosted by an increase in margins on express parcels to above 18%, allaying concerns over the renegotiation of the Meesho deal.

Delhivery shares have gained 14% so far in 2024, lagging the 25% return of the Nifty 500 benchmark. “We believe the current price reflects less than 20% express growth over the next 3-5 years versus 30%+ levels seen in the past,” Jefferies India analysts said in a September 18 report. They also believe the growth prospects for Delhivery’s part-truck business are undervalued.

Undoubtedly, the combination of wide reach, low cost and quality of service makes Delhivery hard to beat in the express parcel and part-truckload segments. While competitors are taking action and the changing market dynamics are undeniable, Delhivery seems more focused on playing its cards right than reacting to short-term turbulence.

According to ICICI Securities, the key risk factors for Delhivery stock include pricing pressure in the express parcel and part-truck business, and a deterioration in medium-term growth prospects due to global headwinds.