Delivery's Rs 5,235 cr IPO to open today; should you subscribe? Check details here

Logistics company Delhivery's Rs 5,235 crore initial public offering (IPO) will open today, May 11.

Ahead of the IPO, Delhivery raised Rs 2,347 crore from anchor investors. As per the information available on BSE website, Delhivery Limited has decided to allocate 4,81,87,860 equity shares to anchor investors at Rs 487 apiece, aggregating the transaction size to Rs 2,346.74 crore.

The IPO is a combination of fresh and offer for sale (OFS). The company will not receive any proceeds from the OFS portion. However from the fresh issue net proceeds, Rs. 2,000 crore and Rs. 1,000 crore will be utilized to fund organic and inorganic growth initiatives, respectively

The issue size has been reduced to Rs 5,235 crore amid market volatility and uncertain geo-political situation.The logistics firm had initially planned to raise Rs 7,460 crore through the initial public offering (IPO).

The IPO comprises of fresh issue of equity up to Rs 4,000 crore and an offer for sale of shares aggregating up to Rs 1,235 crore.

With a 22.78 percent stake, SoftBank Holding is the largest shareholder in the company. Nexus Ventures and CI Swift Holdings (Carlyle) hold a 9.23 percent and 7.42 percent stake. Kapil Bharati holds 1.11 percent, Mohit Tandon owns 1.88 percent, and Suraj Saharan has a 1.79 percent stake.

Private equity investors such as Carlyle have pared their OFS portion from Rs 920 crore to Rs 454 crore.

Issu

• Issue Opens : 11 May

• Issue Closes : 13 May

• Price band: Rs 462-Rs 487

• Allotment date: May 19

• Refunds: May 20

• Credit shares to demat account: May 23

• Listing: May 24

• Minimum lot: 30

Advantages

Integrated portfolio of logistics solutions: Delhivery provides full range of logistics services, including express parcel delivery, heavy goods delivery, PTL freight, TL freight, warehousing, supply chain solutions, cross border express and freight services and supply chain software and other value added services This approach has led to a higher wallet share and customer retention.

Proprietary logistics operating system: Delhivery has built proprietary technology systems that enables to offer integrated logistics services to a wide variety of customers. Its technology stack consists of more than 80 applications that encompasses all supply chain processes including order management, warehouse management, transportation management, financial transactions. The company continues to invest in machine learning and artificial intelligence capabilities which helps to solve several complex operational and network problems

Strong relationship with a diverse customer base: Delhivery serves a diverse base of 23,113 active customers across e‐commerce, consumer durables, electronics, lifestyle, FMCG, industrial goods, automotive, healthcare and retail. The customer base included most of the key e‐commerce players in India and over 750 D2C brands. In 1HFY22, 64.9 percent of revenues were from customers who have been transacting with over three years.

Asset light business models: Delhivery has an asset‐light business model that has enabled to scale up volumes rapidly, with lower fixed costs and greater flexibility. While Delhivery’s approach is to invest in critical service elements, network partners play a significant role in the business operations ‐ pickup, mid‐mile (trucking and air) and last‐ mile delivery. As of December 21, it operates over 14.27 million square ft. of leased infrastructure with majority of the vehicles being leased from third-party fleet partners.

Competition and risks

Yes Securities says, Key risks for Delhivery would be operating in a low entry barrier industry, dependency on network partners and third parties for fleet operations and manpower and dependence on certain large customers which contribute significant portion of revenue.

Indian logistics industry

Indian logistic sector is one of the largest in the world and is highly fragmented compared to other markets. Over 85 percent of fleet owners operate fleets of less than 20 trucks, trucks are smaller in size as compared in developed markets, poorly utilization (driving less than 325 kms/day on an average) and smaller warehouses (less than 10,000 sq ft). The top 10 organized players account for 1.5 percent of the logistics market in India, versus 15 percent in US and 7‐10 percent in China. The largest logistics companies in US and China are 20‐30x and 10x+ the size of India’s largest logistics companies, while GDPs are 8x and 5x of India.

The sector is expected to grow at 9 percent CAGR to USD 365bn by FY26. Road transportation is the largest segment in the logistics market and is estimated at $124bn in FY20.

Investment concerns

Any slowdown in e-commerce business in India will impact Delhivery revenue as 62 percent of FY2021 revenue comes from Express Parcel services.

Dependency on top-5 customers, which contributes 41 percent of company revenue.

Company recently launched Delhivery Direct, which is a C2C shipping service, it may be difficult for the company to gain market share due to competition.

Brokerages weigh in

Yes Securities recommends SUBSCRIBE rating from a long term perspective on DELHIVERY Ltd IPO. It says the company is 1) the largest and fastest growing 3PL express parcel delivery player, 2) has unified infrastructure network 3) proprietary technology stack and capabilities, 4) vast amount of data intelligence and R&D, 5) experienced professional management team and 6) strong relationship with diversified customer base.

Choice said, the domestic logistics sector presents a large addressable opportunity for organized players like Delhivery. The company with its integrated services, investments in technology and engineering and network and scale-driven efficiencies is well-positioned to benefit from the expansion in the logistics market. At higher price band of Rs. 487, Delhivery is demanding an EV/TTM sales multiple of 4.7x, which is at premium to peer average of 2.9x. Considering the company’s loss making operations, we are assigning a “Subscribe with Caution” rating for the issue.

Hem Securities said the company is bringing the issue at price band of Rs 462-487 pershare at ev/sales multiple of approx. 5x. "Looking at current financials, we recommend “Avoid” for short term while only long term investors can “Subscribe” issue".

Marwadi Financial Services said: Avoid. Considering the TTM Sales of Rs.58,132 mn on a post-issue basis, the company is going to list at a MCap/Sales of 6.07x with a market cap of Rs.352,832 mn whereas its peers namely BlueDart and Mahindra Logistics are trading at MCap/Sales of 3.66x and 0.84x. "We assign “Avoid” rating to this IPO as the company is loss-making with negative operating cash flows. Also, it is available at expensive valuation as compared to its peers".

Angel One gave it a Neutral recommendation. Yash Gupta- Equity Research Analyst, Angel One Ltd, said, Based on annualized FY22 numbers, the IPO is priced at EV/Sales of 4.8x and Price to Book value of 5.2x at the upper price band of the IPO. For 9MFY22 company has reported an EBITDA loss of Rs 232 crores and a Net loss of Rs 891 crores. In the Indian markets, no other peer group has the same business model as Delhivery. The company has reported good revenue growth of 82 percent in 9MFY2022 and it is expected that the company may turn EBITDA positive by the FY2022 end. Given the expensive valuation, we are assigning a NEUTRAL recommendation to the Delhivery IPO, Gupta said.

Published on: Wednesday, May 11, 2022, 10:21 AM IST