Delhivery Stock Not Pricing In Slowing E-Commerce Volumes, Says Kotak Report
The brokerage said third-party logistics players are “susceptible” to risk of a slowdown from current base of e-commerce volumes.
Delhivery Ltd.’s current stock price doesn’t take into account possible growth moderation in e-commerce volumes, Kotak Institutional Equities said, as it initiated coverage on the logistics services provider with a ‘reduce’ rating.
The company is “operationally well-positioned to drive a 26% decadal Ebitda CAGR”, which is much ahead of sectoral volume growth prospects, the brokerage said in a Sept. 8 note. “Its diversified customer and business mix should protect it strategically from changes in the industry structure.”
But the current market price “does not factor in growth moderation in e-commerce sector volumes and limitations to the pace of share gains in the partial truck load business”.
The brokerage pegged the stock’s fair value at Rs 540—a 4.4% discount to its opening price of Rs 565.05 on Sept. 9.
Kotak said third-party logistics players are “susceptible” to the risk of a slowdown from the current base of e-commerce volumes. “E-commerce volumes, excluding Meesho, may have grown closer to or lower than 20% over such a period. This reflects growth moderation for both Amazon and Flipkart since FY18 and FY19, respectively, coinciding with their cash burn flattening out.”
“In the current context of Meesho focusing on reducing its monthly cash burn, we see merit in being conservative on growth in e-commerce shipment volumes in the next one-two years.”
Also, constraints will come in way of Delhivery growing very fast in the partial truckload segment given the long tail of customers, it said. “The pace of winning accounts faster than the industry entails convincing several small customers of shifting vendors. While Delhivery’s interplay of loads and scalable business model should help, there would be constraints in growing much ahead of the market.”
During the day, shares of the company swung between losses of as much as 0.6% and gains of 0.92%, before closing marginally higher at Rs 569.
Of the 13 analysts tracking the company, six maintain a ‘buy’, four suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a 9.7% upside.