DELHIVERY - Delhivery Limited Share Price

Delhivery's management highlighted a positive outlook driven by sustained profitability trends, with Q3 marking the third consecutive quarter of positive PAT. Key points include:

• Express Parcel Business: Aiming for 17-20% service EBITDA margins, leveraging pricing stability and fleet cost normalization. D2C and SME segments grew 30% and 50% YoY, respectively.
• PTL Growth: Targeting 25-30% volume growth in FY26, with margins improving due to higher yields and network utilization. December 2024 saw record freight volume (147,000 tons).
• Rapid Commerce: Launched in 3 cities, targeting Rs.80-100 crore revenue this fiscal, with breakeven at 700-800 orders/day per dark store.
• Supply Chain Services: Revenue grew 30% YoY to Rs.222 crore in Q3, returning to profitability.
• Cost Efficiency: Corporate overheads reduced to 8.9% of revenue (from 10.2% in Q1), targeting 6% long-term. Capex guidance lowered to 5.6% of revenue, trending toward 3.5-4%.
• Industry Dynamics: Expect consolidation as competitors face unsustainable losses, potentially boosting Delhivery's market share. Insourcing impacts (e.g., Valmo) are plateauing, with outsourcing likely to rebound.
• Cash Position: Strong liquidity at Rs.5,488 crore supports strategic investments.
  Management remains confident in gaining share across segments, driven by integrated network advantages and disciplined execution.

Question 1:
"What should we think about the steady state margins for the core Express Parcel business, and how far are we from that number? Does anything change with one of the top operators in sourcing in terms of how you look at steady state margin?"
Answer:
Steady-state margins for Express Parcel are expected to reach 17"“20% service EBITDA. Current margins are temporarily impacted by higher fixed costs (e.g., new Bangalore facility) and fleet cost inflation during peak season. Insourcing by competitors has eroded industry profit pools, but Delhivery's share remains dominant. Structural improvements and price corrections are anticipated as competitors face unsustainable losses.

Question 2:
"On the PTL side, last two years saw solid margin improvement, but the last three quarters showed slower progress. Should we expect gradual or sharp margin improvement ahead?"
Answer:
PTL margins (3.8% in Q3) are rising due to yield improvements and network utilization. Growth will accelerate via targeting underserved markets (e.g., reverse line-haul routes) and higher-margin retail/SME clients. December 2024 saw record freight volume (147,000 tons), with FY26 growth targeted at 25"“30%. Margins are poised to outpace Express Parcel.

Question 3:
"How is rapid commerce scaling, and what could D2C's contribution be in the medium term?"
Answer:
Rapid commerce (2-hour delivery) is live in 3 cities, serving D2C brands with ~500 orders/day per dark store. Expected FY25 revenue: Rs.80"“100 crore. D2C/SME segments grew 30% and 50% YoY, respectively, driven by superior service and pricing. These segments are key growth drivers but remain a smaller portion of total e-commerce volumes.

Question 4:
"Why have Express Parcel margins lagged despite muted volume growth? Is infra addition aligned with volume or creating spare capacity?"
Answer:
Margins were impacted by temporary fleet cost spikes during festive demand and fixed-cost absorption (Bangalore facility). Infra additions align with volume; CapEx guidance (3.5"“4% of revenue long-term) remains on track. Utilization improvements and PTL synergy will aid margin recovery.

Question 5:
"Can competitors sustain pricing, delaying industry consolidation? Why not force consolidation as a leader?"
Answer:
Competitors' losses and capital constraints will drive pricing corrections or volume shifts to Delhivery. M&A is limited due to unattractive target portfolios. Discipline and scale advantages position Delhivery to gain share organically as weaker players exit.

Question 6:
"How does the integrated model counter variable-cost rivals like Valmo? Are entry barriers low?"
Answer:
Integrated networks ensure lower costs (8"“10% advantage), faster delivery, and better service quality vs. fragmented models. Scale reliability (800M+ annual shipments) and operational control are key barriers. Externalization by rivals is unlikely due to higher costs and service inefficiencies.

Question 7:
"Why did PTL volumes dip sequentially? Is SME demand weakening?"
Answer:
Q3 dip was tactical (priority to Express during peak season), offset by record December volume. HPCL partnership and SME focus will drive growth. FY26 PTL targets remain robust (25"“30% growth) with margin expansion.

Question 8:
"What is rapid commerce's addressable market, and why limit to Rs.80"“100 crore revenue?"
Answer:
Rapid commerce targets metro Zone A (8"“9% of e-commerce), focusing on high-demand SKUs. Limited by niche use cases and high city-center warehousing costs. Scalability is constrained but complements core offerings for D2C brands.

Question 9:
"Is e-commerce growth below 10%? Can customers reignite mid-teens growth?"
Answer:
FY25 e-commerce growth is muted. Recovery hinges on marketing reinvestment (if platforms reduce in-house logistics costs) and Tier 2"“4 expansion. D2C/SME segments remain bright spots.

Question 10:
"How to reconcile D2C/SME growth (30"“50%) with Delhivery's 2% total volume growth?"
Answer:
D2C/SME growth offsets declines in larger clients (e.g., Reliance, AEPL). Marketplaces face slower growth, but Delhivery's diversified client base (top 5 clients <50% revenue) mitigates concentration risk. Insourcing headwinds are largely absorbed.