Delhivery Ranking: Reduce

Operationally, Delhivery is well positioned to generate a 10-year EBITDA CAGR of 26%, well ahead of the industry volume growth outlook. Its diversified client & business mix should strategically protect it from changes in the structure of the sector. The CMP does not take into account a moderation in the growth of volumes in the e-commerce sector and a limitation in the rate of acquisition of shares in the PTL (Partial Truckload) activity. We start with a reduction note and a DCF-based FV of Rs 540.

The last decade of investments makes Delhi very well positioned to grow its market share, margin and TAM
We expect Delhivery to register an Ebitda CAGR of 26% in FY 2025-35E, well ahead of industry growth prospects in its current segments. We expect such outperformance to be driven by a combination of Delhivery gaining market share in its existing lines of work, growing profitability and entering the large sized slow part truckload segment. The key assumptions are: (i) Delhivery’s ability to continue to grow its presence; and (ii) Delhivery retaining some of the additional benefits of cost deflation. When it comes to scalability, we rely on Delhi to benefit from and maintain the track record of investments in network infrastructure and technology.

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We expect 26% revenue CAGR in FY 2022-25E and FCF generation from FY 2026
Adjusted for SpotOn, we see a revenue CAGR of 26% on FY2022-25E. We are around 6% below consensus as we factor in a moderation in sectoral e-com activity and limits on how fast Delhivery can grow PTL business from the current scale. We expect the Adjusted Ebitda margin to improve to 7.6% from 1% in FY 2022-25E.

Initiate with REDUCE and a DCF-based FV of Rs 540
In our DCF-based FV, we assume a healthy CAGR of around 24%/26% of services revenue/EBITDA in FY2025-35E, 10%/11% in FY2035-45E and terminal growth of 5%; business overhead increases at a slower CAGR of 16%/8% in fiscal year 2025-35E/35-45E; and modest improvements in capital expenditure and working capital intensity on incremental sales.

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