Most analysts advise investors to ‘avoid’ the stock because it is losing money due to negative cash flows and has high valuations in comparison to its peers.
Delhivery
On Wednesday, the logistics and supply chain startup Delhivery Limited (Delhivery) launched its initial public offering (IPO). By revenue, Delhivery is India’s largest fully integrated logistics services company, offering a full spectrum of logistics services such as express parcel and heavy goods delivery, warehousing, supply chain solutions, cross-border express freight services, and supply chain software.
It has established a nationwide network that serves 17,045 PIN codes, or 88 percent of India’s 19,300 PIN codes. When it received $413 million in a Series F round sponsored by SoftBank Vision Fund in 2019, the Gurugram-based company became a unicorn, valued at over $1 billion.
Characteristics of the Initial Public Offering
The company reduced the size of the IPO from Rs 7,460 crore to Rs 5,235 crore. It will raise Rs 4,000 crore through a new share offering. Existing shareholders’ bid to sell is estimated to bring Rs 1,235 crore. The IPO price range has been set between Rs 462 and Rs 487 per share.
Investors can bid for a minimum of 30 equity shares and then in increments of 30 shares. Retail investors can pay as little as Rs 14,610 for one lot and as much as Rs 1,89,930 for 13 lots.
Qualified institutional buyers (QIBs) will receive 75% of the offer, non-institutional bids would receive 15%, and retail investors will receive 10%.
The stock will be allocated on May 19 and credited to successful applicants’ accounts on May 23, one day before it is launched on the stock exchanges.
Brokerage views
Since its beginning, the company has failed to make a profit in any of its financial years. As a result, the majority of brokerages are sceptical of the company’s financial results. They also believe that the valuations asked by Delhivery are excessively high when compared to its lucrative contemporaries. As a result, most brokerages advise clients to ‘avoid’ purchasing the issue.
YES Securities, on the other hand, has given the issue a ‘subscribe from a long-term perspective’ rating because, “over FY1921, through the combination of integrated solutions, proprietary logistics operating system, automation, and the entrepreneurial team, Delhivery has been able to post revenue CAGR of 48.5 percent with losses continuing at operating levels.”
Increased market share, higher utilisation, and synergy benefits from Spoton, according to the brokerage, will help the company turn profitable. In its analysis, YES Securities stated, “Given strong market sentiment and healthy market share in third party logistics (3PL), we recommend the company to investors from a long-term viewpoint.” This issue is selling at a 9.6x revenue multiple at the top of the price band.
Delhivery is backed by a solid network, technology, and automation, according to Arihant Capital Markets. The company’s strength is its excellent relationships with a varied consumer base. “The company offers an asset-light business model that can be grown at cheap costs, as well as an experienced and highly qualified workforce with significant investment in training.”
On the financial front, Delhivery has lost Rs 1,783 crore in FY19, Rs 269 crore in FY20, and Rs 416 crore in FY21 during the last three years (on a consolidated basis). “The company has been valued at 9.7x P/sales, which is greater than the other logistics services companies, based on its FY21 revenue.” As a result, we advise investors to “Avoid” this issue, according to the brokerage.
Hem Securities, a Mumbai-based brokerage firm, advises “Avoid” for the short term, but “Subscribe” for long-term investors, according to the brokerage firm. “The company has been displaying rapid expansion and enormous scalability with its proprietary logistics operating system & substantial data analytics capabilities,” the brokerage adds. Its network architecture and engineering, as well as an integrated portfolio of logistics services and solid customer relationships, appear to be strong. Apart from that, the brokerage claims that the company’s broad ecosystem of partners allows for an asset-light business model and expanded reach.
The IPO is also rated “avoid” by Marwadi Financial Services. “Considering TTM (trailing twelve months) sales of Rs 5,813 crore on a post issue basis, the company is going to list at an MCap/Sales of 6.07x with a market cap of Rs 35,283 crore, whereas its peers, BlueDart and Mahindra Logistics, are trading at MCap/Sales of 3.66x and 0.84x, respectively,” according to a brokerage report.
It has given this IPO a “avoid” rating since the company is losing money and has negative operating cash flows, and it is trading at a premium to its rivals.
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