Delhivery Shares Gain The Most In Over A Month After Macquarie Initiates Coverage
The price target was set at Rs 440, implying an upside of 39.3%.
Shares of logistics service provider Delhivery Ltd., gained the most in over a month after Macquarie initiated coverage on the stock, citing a strong position in the logistics sector.
The brokerage initiated coverage on the stock with an 'outperform' and a price target of Rs 440, with a "clear path to 100% in three years".
The price target of Rs 440 implies an upside of 39.3%.
"Over the next few quarters, we see a low-growth operating environment due to tighter funding conditions for e-commerce platforms," the brokerage said in its investor note. If the low-growth operating period becomes the new normal, Macquarie's bear case valuation would be Rs 215 with a 30% downside from the current price, it said.
However, the brokerage said the company is well-positioned to consolidate shares in this period. "We would look beyond this cyclical slowdown."
Shares of the company gained as much as 5.2% intraday before closing 3.4% higher. The benchmark index Nifty 50 lost 0.34%.
The total trade volume was 0.8 times its 30-day average.
Of the 18 analysts tracking the stock, 13 maintained 'buy', three suggested a 'hold', while two analysts recommended 'sell', according to Bloomberg data. The average 12-month consensus price target implied an upside of 36.6%.
Macquarie sees volumes for the logistics company to grow four times by fiscal 2030, with a sustainable cost leadership position, positive unit economics, and no external funding needs.
The company's unit economics were hampered in fiscal 2023 with its acquisition of Spoton. Nonetheless, the brokerage believes that once the teething problems are resolved, the firm will stand on positive and rising unit economics, with Ebitda breakeven in fiscal 2025-2026.
Delhivery had net cash of $670 million (Rs 5,451.45 crore) in FY22 and would require no external funding in its forecast period, it said.
Delhivery will benefit from factors such as rising e-commerce penetration and rising income and discretionary spending in India's Tier 2 and Tier 3 cities, according to the brokerage.
Meanwhile, India's thrust to improve logistics efficiency will also lend a hand in lowering line haul costs and improving unit economics, the brokerage said. Good and services tax, it said, will drive industry consolidation.
Macquarie, citing industry discussions, said that Delhivery's service quality is superior to other specialised third-party players, while its cost structure is better than captives such as Ekart, Xpress Bees, and ATS, among others.
Macquarie expects Delhivery to continue its price-cutting strategy, with an additional 5% price cut in fiscal 2024. According to the brokerage, the company reduced its pricing by nearly 20% to Rs 72 per unit and passed on some of the benefits of its operating leverage to customers. This in turn drove further traffic and helped improve overall margins.
"Overall, in our model, we assume Delhivery’s express parcel revenue CAGR at 19% over the next 10 years, largely driven by growth in shipment volumes."
