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Can Delhivery Climb Back to IPO Levels? Motilal Oswal Sees a Clear Upside

Motilal Oswal has initiated coverage on logistics firm Delhivery with a 'buy' rating and a target price of ₹480, citing strong growth potential in both its express parcel and partial truckload businesses

Can Delhivery Climb Back to IPO Levels? Motilal Oswal Sees a Clear Upside

Domestic brokerage firm Motilal Oswal has initiated coverage on Delhivery shares with a ‘buy’ rating as it sees that the logistics company has the potential to scale. The analyst has kept the target price for Delhivery at ₹480 based on a weighted average cost of capital (WACC) of 12% and a terminal growth rate of 5%.

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Delhivery has been on a robust growth path with 32% revenue CAGR from FY19 to FY25. The brokerage firm has attributed this growth to its express parcel business and growth in partial truckload (PTL).

It further expects revenue to clock a 14% CAGR by FY28, fueled by various factors including health growth in the PTL industry, operating scale and effects of a larger network with the integration of Delhivery-Spoton, and scaling up of integrated solutions as 60% revenue is from customer using two or more services.

Apart from these factors, the analyst stated that the growing demand for express logistics will lead some businesses from the traditional transport segment to transition towards express. This demand will also be fueled by e-commerce market in India which is growing steadily with rising penetration in tier 2 and 3 cities

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“While express parcel services are likely to generate a majority of the revenue, we anticipate steady traction in the PTL business. Delhivery recently acquired Ecom Express to strengthen its presence in the express logistics segment,” Motilal Oswal said.

On the margin front, the analyst believes that Delhivery will achieve a 7% EBITDA margin by FY28 from 4.2% in FY25. “….targeting strong growth in its PTL business share post-acquisition of Spoton. The PTL business is a high-mergin segment with a sticky customer base and as business stabilises and volumes ramp up, we expect margins to improve further”.

“We expect its RoE to improve to 5.6% in FY28 from 1.8% in FY25. Considering the strong focus on volume growth, cost reduction, enhanced service offerings, and tight B/S control, we believe Delhivery is very well placed to capitalise on the growth opportunity unfolding in the express logistics sector,” it added.

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However, it also highlighted various risks suchs as slower growth in the e-commerce segment and slower-than-expected penetration in the B2B express market.

The stock is currently trading 41% below its all-time high of ₹708, which it had reached in July 2022. Today, Delhivery's share price rose by more than 2% in intraday trade to a high of ₹420 on the Bombay Stock Exchange (BSE) at 2 pm. Its IPO price was ₹487 and listing price was ₹536 per share.

Founded in 2011 by Sahil Barua, Mohit Tandon, Bhavesh Manglani, Suraj Saharan and Kapil Bharati, Delhivery is a transportation, supply chain, and logistic firm. Its direct competitors include Blue Dart, Xpressbees, Flipkart’s Ekart Logistics, and Amazon Shipping.

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