Delhivery’s stock slump deepens; can healthy Q2 numbers reverse the slide?

A few stocks on Dalal Street continue to face extended sell-off pressure due to a variety of factors, including weak financial performance, rising competition, softening demand, and macroeconomic headwinds. As a result, these stocks remain sidelined, despite the overall market performing exceptionally well.

One such stock in this regard is Delhivery—India’s largest fully integrated logistics services provider—which has been on a downward trajectory since August 2022, with no significant pullbacks. The sell-off has intensified recently, with the stock declining 16.2% in October and an additional 3.3% this month to ₹344.25.

At current levels, Delhivery’s stock is trading 51.4% lower from its all-time high of ₹708, attained in July 2022. This significant underperformance can be attributed to several factors, including a slowdown in the third-party logistics (3PL) market, increasing in-sourcing at Meesho, and the rapid growth of quick commerce within e-commerce, where logistics are typically managed in-house.

Additionally, the rising market share of competitors in the 3PL space has further compounded the stock’s struggles.

However, analysts expect a turnaround in the company’s shares following its Q2FY25 performance, supported by new initiatives, a pickup in e-commerce demand, and expectations of a shift in Meesho’s volumes to Valmo.

Second consecutive quarter of profit

The company reported revenue from services at ₹2,190 crore in Q2FY25, marking a 13% YoY growth compared to ₹1,942 crore in Q2FY24. This growth was primarily driven by the PTL segment, which saw a 27% YoY increase to ₹474 crore, while express parcel, accounting for 60% of total revenue, grew steadily by 7% YoY to ₹1,298 crore, despite being a seasonally weak quarter ahead of the peak festival season.

EBITDA surged to ₹57 crore in Q2FY25, reflecting a YoY improvement of ₹73 crore compared to an EBITDA loss of ₹16 crore in Q2FY24.

The company also reported a profit for the second consecutive quarter, with a profit after tax (PAT) of ₹10 crore in Q2FY25, a YoY increase of ₹113 crore, compared to a loss of ₹103 crore in Q2FY24.

PTL segment sustains pace; express to pick up

The PTL B2B segment has grown significantly at 20% in H1FY25 compared to peers struggling for growth. The company expects growth to continue with improvement in profitability on better efficiency of automation in hubs and network centres.

It envisages current service EBITDA of 3% to improve to 15-16% in the long term on operating synergies. The express segment is also likely to grow on expectations of eCommerce demand picking up, which is currently experiencing softness. The company has stabilised volume from eCommerce giants like Meesho post commencement of its in-house logistics operations, Valmo.

New initiatives to drive growth

Domestic brokerage firm Elara Securities said that the company aims to enhance its service quality and growth in both PTL and express segments through initiatives such as increasing next-day delivery by reducing return rates, foray into the air express segment by operating on prime flights from currently non-prime, undertaking rapid commerce by delivering products in 4-5 hours (already started a pilot project at Bengaluru), and expansion of current 120 freight station presence across smaller cities, aiming at large volumes from SME and individual customers with further gaining volumes from the existing express partner centre network.

Elara Capital optimistic on stock

Following the company’s Q2 numbers, domestic brokerage firm Elara Capital retained its ‘buy’ rating on the stock with a target price of ₹570 apiece, which indicates an upside potential of 65.6% from the stock’s previous day closing price.

“Focus continues on ramping up volume and improving profitability. Overall growth momentum is likely to continue with new areas getting unlocked. We remain hopeful of an uptick in capacity utilisation,” said the brokerage.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions