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Tuesday, 10 May 2022
CM RATING39/100
 

Delhivery

Tech tooled logistics player

Backed by tech and infrastructure, set to ride the e-commerce growth and customer efforts to lower logistics cost

Delhivery is a fully integrated logistics player in India providing a full range of logistics services, including express parcel and heavy goods delivery, part truckload freight (“PTL”), truckload freight (“TL”), warehousing, supply chain solutions, cross border express and freight services. Apart from this it also offers supply chain software and value-added services, such as e-commerce return services, payment collection and processing, installation and assembly services and fraud detection.

The business model of the company is asset light, wherein it extends its logistics ecosystem by enabling network partners, such as franchisees, retail partners and delivery agents, to on board their physical assets and resources and participate in its platform.

Its in-house logistics technology stack is built to meet the dynamic needs of modern supply chains and have over 80 applications through which the company provide various services, orchestrated by its platform to govern transaction flows from end to end. The platform of the company is designed as a set of foundational layers, libraries and APIs that form the building blocks for logistics applications and provides a configurable framework and tools to enable both internal and external developers to build custom applications.

End of December 2021, it had built a nation-wide network with presence in every state, servicing 17488 PIN codes (covering 90.61% of total 19300 Pin codes in India). To further build scale in its PTL freight services business, it has acquired Spoton Logistics (“Spoton”), an express PTL freight service provider in India, in August 2021. Spoton has a network presence across 13087 PIN codes with 2.85 million sq. ft. of infrastructure as of December 31, 2021.

As of December 31, 2021, its network infrastructure included 122 gateways (including Spoton’s 40), 21 automated sort centres, 93 fulfilment centers, 35 collection points, 31 returns processing centers, 244 service centres (including Spoton’s 138), 132 intermediate processing centers and 2,521 direct delivery centres.

Together with Spoton, it operated 4,179 delivery points, as of December 31, 2021. Its self-delivery network is augmented by 1,209 partner locations that expand its reach, provide critical flexible capacity and redundancy and Spoton’s service centres are augmented by 205 additional locations operated by business associates.

It has expanded internationally by establishing a reciprocal partnership with Aramex and a strategic alliance with FedEx, both global express leaders, for customs clearance, pick-up, and delivery services. It entered an alliance with Aramex in March 2019, expanding its coverage in the Middle East and North Africa, and providing reciprocal access to Aramex customers to its India network.

Further in July 2021, the company have executed an agreement to facilitate a strategic alliance with FedEx, targeted principally at expanding its coverage in the North American, European, Australian, and Asian markets. This agreement became effective on December 5, 2021.

Issue and objects of the offer

The Initial Public Offer comprises a Fresh Issue of Equity Shares aggregating up to Rs 4000 crore and offer for sale (OFS) aggregating up to Rs 1235 crore by the selling shareholders.

The OFS comprise selling of shares by both Institutional as well as Individual with former selling shares worth Rs 1184 crore [CA Swift Investments Rs 454 crore, Deli CMF Rs 200 crore, SVF Doorbell (Cayman) Rs 365 crore and Times Internet Rs 165 crore] and latter worth Rs 51 crore [Kapil Bharati Rs 5 crore, Mohit Tandon Rs 40 crore and Suraj Saharan Rs 6 crore].

On post issue expanded equity (on Upper price band), the holding of selling shareholders will be 5.08% for CA Swift Investments, 0.38% for Deli CMF, 18.51% for SVF Doorbell (Cayman), 3.91% for Times Internet, 0.91% for Kapil Bharati, 1.50% each for Mohit Tandon and Suraj Saharan.

Of the total proceeds from fresh issue (net of issue costs), about Rs 2000 crore will be utilised to fund organic growth initiatives [Rs 160 crore for building scale in existing business lines and developing new adjacent business line; Rs 1360 crore towards expanding its network infrastructure; Rs 480 crore towards upgrading and improving its proprietary logistics operation system]; Rs 1000 crore to fund inorganic growth through acquisitions and other strategic initiatives and balance towards general corporate purposes.

Strengths

Offering a 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, along with value added services such as e-commerce return services, payment collection and processing, installation and assembly services and fraud detection enable it to capture higher wallet share with existing clients. It also helps to retain clients as well allow the company to offer competitive price to customers. Several of customers of the company use more than one of its service offerings. About 58.13% of revenue in 9mFY22 come from customers who had used at least two of the services of the company.

It is the largest and fastest growing fully integrated logistics service player in India by revenue with a CAGR of 48% during FY19-FY21.

The proprietary technology systems built by a large in-house team enables it to offer integrated logistics services to a wide variety of customers while remaining asset-light and ensuring service quality and efficiency.

Its technology stack orchestrates its network infrastructure and consists of more than 80 applications that encompass all supply chain processes including order management, warehouse management, transportation management, financial transactions such as billing and remittance, tracking and supply chain analytics.

Active customer base of the company numbering at 23113 (excluding that of Spoton) is diverse and spread across e-commerce marketplaces, direct-to-consumer e-tailers and enterprises and SMEs across several verticals such as FMCG, consumer durables, consumer electronics, lifestyle, retail, automotive and manufacturing, for the nine months period ended December 31, 2021. The customer base includes most of the key e-commerce players in India and over 750 D2C brands end of December 2021. In addition, Spoton offers PTL freight services to 5,533 Active Customers across industry verticals.

The Express Parcel Service of the company largely caters to customers in growing e-commerce industry in the country. Despite the company consciously diversified into other industry verticals, including customer electronics, consumer durables, FMCG, healthcare, lifestyle, automobiles and manufacturing the e-commerce customers (as reflected by Express Parcel Services) continue to command 61.51% of revenue in 9m FY2022, down from about 83.02% in FY19.

Following its acquisition of Spoton, the company has become the third largest PTL freight player in India in terms of revenue as of FY2021, with a market share of approximately 8.3% of the organized PTL market in India.

It has built a high-quality logistics infrastructure and network engineering, a vast network of domestic and global partners and significant investments in automation, all of which are orchestrated by its self-developed logistics operating system that is guided in real-time by deep sources of proprietary network and environmental data.

Together, these create powerful, intersecting flywheels that drive strong network synergies within and across its services and enhance its value proposition to customers.

Weakness

Continued loss at operating level after excluding the non-cash fair value losses accounted in FY2019, FY2021 and 9mFY2022. Considering history of losses and negative operating cash flow it needs to be seen how it manage to sustain growth as well as turn profitable.

Logistics industry (especially components of it such as road transportation, warehousing) is a highly fragmented industry with presence of small fleet owners and thus characterised by intense competition.

All logistics facilities are leased as the company operate an asset light model. And, thus, failure to renew leases or locate desirable alternative to current facilities or any irregularities in lease agreement may adversely affect the business of the company.

However, its Retention Rate of material network partners, fleet partners and manpower agencies with an annual billing of more than Rs 50 lakhs was 95.45%, 97.06% and 94.92% for FY 2019, FY 2020, and FY 2021, respectively.

Significant portion of its business is accounted by top five customers of the company. Top five customers accounted for 43.98%, 42.66% and 48.78% in 9mFY2022, FY2021 and FY2019, respectively. So, any loss of large client or weak performance of that client will impact the business performance of the company.

Failure to successfully integrate acquisitions or achieve the anticipated benefits from these alliances or acquisitions or investments may impact the performance of the company. The company plans to offer financial services such as working capital financing, insurance, and personal loans in the future, either independently or in association with its partners leveraging its data analytics capability.

It also expanded into high-growth international markets same as India. Thus, venturing into unfamiliar domains or geography increases business risk.

Considering high reliance on e-commerce industry or certain Indian online marketplaces, any market share loss of these online marketplaces will have impact on the performance of the company. Major e-commerce marketplaces are estimated to have fulfilled more than 75% of their parcel deliveries through their in-house captive logistics arms in FY 2021 and 59% of total e-commerce shipments in India in FY 2021 were handled by captive logistics arms of the various e-commerce companies.

Thus, any effort by the company’s e-commerce marketplace to reduce outsourcing logistics operations or to develop their in-house fulfilment capabilities to serve their logistics needs may significantly affect its market share and total parcel volume.

The audit report on the Special Purpose Consolidated Financial Statements of Spoton as of and for the fiscal year ended March 31, 2021, have included an Emphasis of Matter by BSR & associates LLP, the predecessor statutory auditors of Spoton, drawing attention to the Scheme of Arrangement for amalgamation of Vankatesh Pharma Private Limited and Spoton. In accordance with the Scheme, which was approved by the NCLT, Ahmedabad, vide its order dated November 27, 2019, Spoton continue to amortize goodwill over a period of five years in such financial statements, which overrides the relevant requirement of Ind AS 103 Business Combination and Ind AS 36 Impairment of Assets, which state that acquired goodwill is not permitted to be amortized and is required to be tested annually for impairment.

Additionally, the Statutory Auditors of the company also included an Emphasis of Matter in their examination report on the Restated Financial Statements indicating that their audit report on the Audited Interim Consolidated Ind AS Financial Statements included an emphasis of matter related to Spoton, to state that, in accordance with the Scheme approved by the NCLT, Spoton continues to amortise Goodwill over a period of five years, which overrides the relevant requirement of Ind AS.

Has not complied with certain provisions of the Companies Act, 2013, and have had a delay in reporting a downstream investment in the past.

Valuation

Consolidated revenue for the fiscal ended March 2022 was up 31% to Rs 3646.53 crore. But with operating profit margin being negative 3.1% compared to negative 6.2% in corresponding previous period, the operating loss was lower by 34% to Rs 113.74 crore. The PBT was a loss of Rs 365.22 crore against a loss of Rs 268.80 crore. With fair value loss on financial liabilities being Rs 9.195 crore against nil, the PBT before EO was a loss of Rs 374.41 crore, an increase of 39%. EO Expense was Rs 41.33 crore against nil. Thus, the PBT after EO was a loss of Rs 415.74 crore against a loss of Rs 268.80 crore in corresponding previous period. Eventually the net loss was Rs 415.74 crore against a loss of Rs 268.93 crore in the corresponding previous period.

For nine months ended December 2021, the sales were up 82% to Rs 4810.53 crore. As 9mFY2022 include the financials of newly acquired Spoton (consummated in Aug 2021) for part of the period both periods are not comparable. But with OPM negative 4.9% against negative 3.8%, it was a loss of Rs 235.48 crore at operating level. The PBT was a loss of Rs 599.01 crore against a loss of Rs 256.16 crore.

After accounting for fair value loss on financial liabilities of Rs 299.74 crore, PBT before EO was a loss of Rs 898.75 crore against a loss of Rs 256.16 crore. EO was nil for the period against an expense of Rs 41.33 crore. Thus, PBT after EO was a loss of RS 898.75 crore, an increase of 55%. Eventually the net profit was a loss of Rs 891.14 crore against a loss of Rs 297.49 crore.

TTM sales of the company were Rs 5813.19 crore, and the net loss was Rs 1009.39 crore. However, more established logistics players such as Transport Corporation of India (TCI), TCI express and VRL Logistics quotes at a TTM PE of 19.1 times, 48.3 times and 33.8 times respectively. Blue Dart Express and Mahindra Logistics quotes at a PE of 39.2 times and 90.6 times.

The offer at upper price band is made at 6.1 times of its EV/sales. On TTM basis, TCI Express, VRL Logistics and TCI was available at an EV/Sales of 6.1 times, 2.1 times and 1.7 times respectively. Blue Dart Express quotes at EV/Sales of 3.6 times of its FY 2022 sales. Mahindra Logistics quotes at an EV/Sales of 0.8 times of its FY2022 sales.

As there are no promoters for the company, the entire equity will be floating stock after the mandatory IPO related lock in of one year.

Delhivery: Issue Highlights

Sector

Logistics

Fresh Issue (in Rs. Crore)

4000.00

Offer for sale (in Rs. Crore)

1235.00

Price band (Rs.)*

Upper

487

Lower

462

Post-issue equity (Rs crore)

Upper

72.45

Lower

72.89

Post-issue promoter (including promoter group) stake (%)

0.00

Minimum Bid (in nos.)

30

Issue Open Date

11-05-2022

Issue Close Date

13-05-2022

Listing

BSE, NSE

Rating

39 /100

Delhivery: Consolidated Financials

1903 (12)

2003 (12)

2103 (12)

2012 (9)

2112 (9)

Sales

1653.90

2780.58

3646.53

2643.87

4810.53

OPM (%)

-8.3

-6.2

-3.1

-3.8

-4.9

OP

-137.80

-172.05

-113.74

-100.31

-235.48

Other income

40.98

208.05

191.76

162.66

100.88

PBIDT

-96.82

36.01

78.03

62.36

-134.60

Interest

35.81

49.22

88.63

63.94

76.23

PBDT

-132.64

-13.21

-10.60

-1.58

-210.83

Depreciation

170.01

255.59

354.62

254.58

388.18

PBT

-302.64

-268.80

-365.22

-256.16

-599.01

Fair value loss on financial liabilities

1480.664

0

9.195

0

299.739

PBT before EO

-1783.30

-268.80

-374.41

-256.16

-898.75

EO Exp

0.00

0.00

41.33

41.33

0.00

PBT after EO

-1783.30

-268.80

-415.74

-297.49

-898.75

Tax

0.00

0.12

0.00

0.00

-7.61

PAT

-1783.30

-268.93

-415.74

-297.49

-891.14

Share of profit from Associates (SoPA)

0.00

0.00

0.00

0.00

0.00

Minority Interest

0.00

0.00

0.00

0.00

0.00

Net profit

-1783.30

-268.93

-415.74

-297.49

-891.14

EPS (Rs)**

-24.6

-3.7

-5.2

-3.5

-12.3

** on post issue equity (on upper price band) of Rs 72.45 crore. Face Value: Rs 1

EPS is calculated after excluding EO and relevant tax

# EPS can not be annualised due to seasonality in operations

Figures in Rs crore

Source: Capitaline Corporate database