Delhivery delivers parcels to over 90% of India, but will its IPO deliver returns to its investors? Here’s what the analysts are saying

• Logistics startup Delhivery is opening its IPO from tomorrow May 11 with a price band of ₹462 to ₹487 per share.
• The company has reduced issue size to ₹5,235 crore from ₹7,460 crore it had decided earlier because of volatile market conditions, and the ₹21,000 crore LIC IPO which could suck out the liquidity from the market.
• Analysts think that the Delhivery IPO is on the expensive side and hence recommend investors to avoid it.

Logistics and supply chain company Delhivery is all set to launch its ₹5,235 crore initial public offering (IPO) tomorrow from May 11 to May 13.

The company has reduced issue size to ₹5,235 crore from ₹7,460 crore it had decided earlier because of volatile market conditions and the ₹21,000 crore LIC IPO which could suck out the liquidity from the market.

Delhivery’s public issue, which aims at mopping up INR 5,235 crore from the market, includes ₹4,000 crore worth fresh equity shares and ₹1,235 crore via sale of shares by existing investors via the offer for sale (OFS) route. Shareholders like Carlyle, Japanese Softbank, Fosun group-owned China Momentum Fund and Times Internet will sell some of their shares in the IPO.

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.

Delhivery is raising funds to fuel its future growth

The company has proposed to use the net proceeds from the IPO to fund its acquisitions and expansion plans, with an eye on future growth.

In August 2021, Delhivery had acquired Spoton to scale their PTL freight services business.

The company’s express parcel delivery network services 17,500 pincodes, covering 90.6% of the total 19,300 pincodes in India.

The size of the company's active customers have grown four times in the last three financial years along with good growth in pincode reach and delivery points.
Source: Delhivery DRHP

What are the analysts saying – should you subscribe to the Delhivery IPO or not?

However, despite meaningful growth in its service offerings and revenue, Delhivery is still incurring losses. This is one of the reasons some analysts have recommended investors to skip the IPO.

Analysts at BP Equities suggest investors avoid the IPO, saying that it is similar to new age firms like Zomato, PayTM which have disappointed investors and wiped out a considerable portion of their investments.

At the upper end of the price band, the issue is aggressively priced, says a report by BP Equities.

“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,” added the report.

It is worth mentioning that although the company is still not profitable, its losses have reduced by four times in FY 2021-22 when compared to FY 2019-20.
Source: Delhivery DRHP

Despite appreciating the company’s revenue growth, analysts at Angel One aren’t bullish, yet.

“In the Indian markets, no other peer group has the same business model as Delhivery. It has reported good revenue growth of 82% in nine months of FY2022 and it is expected that company may turn EBITDA positive by FY2022 end. Given the expensive valuation, we are assigning a NEUTRAL recommendation to the Delhivery IPO,” said a report by brokerage Angel One.

Seconding the views, analysts at Choice Broking have assigned “Subscribe with Caution” rating for the issue considering the company’s loss making operations.

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