Following the disastrous initial public offering (IPO) debut of digital payments company Paytm, at least a dozen Indian companies planning on IPOs are now under increased investor scrutiny. Offerings on the radar include logistics company Delhivery Ltd. The logistics giant recently filed documents with the market regulator. It plans to raise Rs. 7,460 crore through the IPO. Although the company is yet to announce the dates and price band, let’s analyse if the IPO turns out to be a game-changer or not!
Delhivery classifies Blue Dart Express Limited, TCI Express Limited, and Mahindra Logistics Limited among its peer group. All three of them are profitable ventures and have a positive return on net worth. The share of the top 10 organised players in the logistics sector is a mere 1.5% for India as compared to 15% for the US and 10% for China. Hence there will be fierce competition among all players to grab a bite of the market. Compared to its peer group, Delhivery still has a long way to go!
An Emerging Threat
Although the Gurugram-based unicorn claims to have more than 21,000 customers and has a majority chunk of revenues coming from the e-commerce space, 41% of its revenues come from just five clients. This poses a concentration risk as the cost of switching to other logistics partners is very low. And this becomes more evident from the fact that e-commerce giants such as Amazon and Flipkart have been trying to build their own logistics network! Loss of even one of its top clients may lead to Delhivery having to incur a dent in its revenues.
What Lies Ahead?
To mitigate this risk, the new age domestic logistics giant and supply chain firm is now betting on the rise of direct-to-consumer (D2C) companies. D2C companies are the ones that sell their products directly through their own website or social media platforms. Over 50% of the shoppers from D2C brands were from tier-2+ towns in 2021. Reports from research firms indicate that D2C shipments could go up by a whopping 6x! That’s where Delhivery’s future lies!
Will Delhivery Deliver Returns?
The performance of Delhivery at its IPO will depend on market mood at the moment. Some analysts argue that traditional indicators such as ROCs and ROEs, as well as cash flows, can be overlooked by investors in new-age enterprises. The rise of the logistics sector as a prominent investment issue in recent years may work in the company's favour. Retail and institutional investors now have a far better understanding and appreciation of logistics as a sector than they did a few years ago.
Every industry is beginning to realise that logistics will be the answer to the next wave of issues. The post-pandemic crustal shift in the logistics business has also aided companies like Delhivery in priming the expansion pump.
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