Delhivery’s profit party cut short as express slump dents growth

Delhivery Ltd's shares are down about 11% since the company returned to net loss in its March quarter (Q4FY24) results, even as it recorded its first Ebitda-level profit for the whole of FY24.

The culprit was the sharp slowdown in Delhivery’s key express-parcel segment (62% of FY24 revenue) owing to subdued online consumption and increased insourcing by Meesho. After a strong festive season, express-parcel revenue plunged 16% sequentially in Q4 as shipment volumes fell. This weakness could not be fully offset by the 10% and 35% sequential revenue growth in part-truck-load (PTL) and supply-chain services.

As a result, Delhivery’s Ebitda more than halved to ₹45.9 crore in Q4 from the previous quarter. The company, however, expects growth in express-parcel revenue to rebound. As it renegotiates contracts, management projects 15-20% year-on-year express-parcel revenue growth in FY25, after 12% growth in FY24.

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A bright spot is the continued improvement in PTL profitability. Management reiterated that the PTL service Ebitda margin, which stood at 2.2% in Q4, could eventually match the 18-20% margin of the express-parcel service and significantly boost the bottom line.

For FY25, Delhivery guided for a lower capex range of 6.6% to 6.9% of annual revenue from 7.4% in FY24 as it looks to optimise existing resources. While the huge upcoming facility in Bengaluru will require significant capex, the focus remains on expanding the tractor-trailer fleet. Delhivery is also exploring engineering solutions to maximise the potential of current facilities to further enhance capacity.

Meesho’s insourcing hits outlook

While Delhivery's first year of Ebitda profitability and growth in non-core segments are positive signs, the immediate future seems uncertain. The significant drop in express-parcel delivery highlights the volatility in its bread-and-butter business, and is a major cause for concern. In the near term, express volumes could be under more pressure owing to the insourcing of logistics by Meesho.

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Emkay Global Financial Services reduced its FY26 sales and Ebitda estimates by 5% and 8%, respectively after factoring in the insourcing hit, but said it expected a profit-after-tax turnaround in FY25. Remember that Delhivery continued to post a net loss in FY24.

Looking ahead, the company's ability to navigate the volatile market and restore profitability in its core segment will be crucial to regaining investors’ confidence and reversing the stock's downward trend. “Losses had been narrowing but still persist. Profitability remains the key for the stock price to start an upward trajectory,” said Nuvama Institutional Equities. The recent decline in Delhivery’s stock has meant that returns so far in 2024 stand at 36%.

Also read: The fall and fall of India's logistics costs