Delhivery is nothing like Zomato or PayTM - Credit Suisse expects the stock to outperform

• Logistics startup company Delhivery made a tepid debut on Indian stock exchanges on May 24 due to weak market sentiment and poor financials of the company.
• The company struggled to get demand for its IPO as investors stayed away from the IPO considering Delhivery is a loss-making company.
• Contrary to most views, Credit Suisse has initiated an ‘outperform’ rating and suggested a 26% increase in share price.

Gurugram-based Delhivery has often been bunched with other internet-based businesses like Zomato, PayTm and Nykaa — but a brokerage firm doesn’t think so.

Though the logistics company banks on delivering goods for top e-commerce players, it doesn’t face what its clients have to do — spend money to acquire customers, as per Credit Suisse.

“We prefer Delhivery to other internet peers on no customer acquisition cost, diversified growth — e-commerce and broader logistics, and cheaper valuation for the same growth play,” said a report by the brokerage firm.

Credit Suisse initiated coverage on the company which listed at a flat 1% premium on May 24— with an ‘outperform’ rating. It expects the share price to zoom by 26% to ₹675 in a year. It believes that Delhivery has a ‘deep moat’ with scale, growth and profitability.

Its rating is based on “strong moat and leadership in extant scale, network and technology, recent breakeven, with incremental growth aiding profitability synergistically, diversified growth in e-commerce, broader logistics and potential merit as an internet play vs others.”
Source: Delhivery DRHP and company filing

Delhivery doubles its parcel volume
The company also doubled its parcel volumes in FY22 gaining strong market share of around 24-25% in the third quarter — thanks to the business from e-commerce. Credit Suisse expects over 30% structural growth in its e-commerce volumes.

While the Delhivery IPO was subscribed 1.63 times, most of its subscriptions came from the qualified institutional buyer category.

The market seems to have lost its appetite for loss-making companies after a bad experience with Paytm, Zomato and the likes. The company widened its losses by over two times in FY22 to ₹1,000 crore.

There were also concerns about its high valuations earning it an ‘avoid’ rating.

“Despite an improvement in the topline, the company continues to make losses. As we are witnessing the negative market sentiment towards the similar category stocks (Zomato, Paytm), we suggest investors to avoid this issue,” said a pre-IPO report by BP Equities.

Delhivery provides a full range of logistics services, including express parcel delivery, heavy goods delivery, PTL freight, TL freight, warehousing, supply chain solutions, and cross-border services, among others. Yet its high dependence on e-commerce is also a cause for concern.

“A significant portion of the company's business is attributable to certain large customers. Their future actions may have an adverse impact on the company’s business. If company fails to expand the size of business with its existing customers, its business, revenue, profitability and growth may be harmed,” said HEM Securities’ on its IPO.

Here are recommendations by brokerages at the time of IPO few weeks ago:


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