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Delhivery IPO: Should you subscribe? Here's what experts suggest

Most experts advise investors to ‘avoid’ the issue as the company is making losses with negative cash flows and has expensive valuations compared to its peers.

May 11, 2022 / 05:10 PM IST
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The initial public offer (IPO) of the logistics and supply chain startup Delhivery Limited (Delhivery) opened for subscription on Wednesday (May 11). Delhivery is the largest fully integrated logistics services company in India by revenue and provides a full range of logistics services, including delivery of express parcel and heavy goods, warehousing, supply chain solutions, cross-border express freight services, and supply chain software.

It has built a network covering every state, servicing 17,045 PIN codes, or 88 percent of the 19,300 PIN codes in India. The Gurugram-based company became a unicorn – valued at over $1 billion – when it raised $413 million in a Series F round led by SoftBank Vision Fund in 2019.

Features of the IPO

The company cut the size of the IPO to Rs 5,235 crore from Rs 7,460 crore planned earlier. It will raise Rs 4,000 crore via a fresh issue of shares. The offer for sale by existing shareholders is expected to fetch Rs 1,235 crore. The price band for the IPO has been fixed between Rs 462 – 487 per share.

Investors can bid for a minimum of 30 equity shares and in multiples of 30 shares thereafter. Retail investors can make a minimum investment of Rs 14,610 for one lot and their maximum investment would be Rs 1,89,930 for 13 lots.

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75 percent of the offer is reserved for qualified institutional buyers (QIBs), 15 percent for non-institutional bidders, and the rest 10 percent for retail investors.

Share allotment will be done on May 19 and it will be credited to successful applicants to their accounts on May 23, a day before the stock is listed on the stock exchanges.

Brokerage views

The company has not been able to earn profits in any of the financial years since its inception. Hence, the majority of the brokerages are sceptical about the company's financial performance. Also, they believe that the valuations demanded by Delhivery are expensive when compared to its peers which are profitable. Therefore, most brokerages recommend investors ‘avoid’ subscribing to the issue.

YES Securities; however, has assigned a ‘subscribe from long term perspective’ rating to the issue due to the fact that, “over FY19‐21, through the combination of integrated solutions, proprietary logistics operating system, automation, and the entrepreneurial team has enabled Delhivery to post revenue CAGR of 48.5 percent with losses continuing at operating levels”.

The brokerage is of the opinion that increasing market share, rising utilisations, and synergy benefits arising from Spoton will help the company turn profitable. “Given strong market sentiment and healthy market share in third party logistics (3PL), we recommend the stock to the investors from a long‐term perspective”, YES Securities said in its report. At the upper end of the price band, this issue is trading at a 9.6x of revenue.

According to Arihant Capital Markets, Delhivery is backed by a strong network, technology, and automation. A strong relationship with a diverse customer base is the company’s strength. “The company has an asset-light business model which can be scaled at low costs and also, it has experienced and highly qualified team with significant investment in training”.

On the financial front, for the last three years, Delhivery has posted a loss (on a consolidated basis) of Rs 1,783 crore in FY19, Rs 269 crore for FY20, and a loss of Rs 416 crore in FY21. “Based on its FY21 revenue, the company has been valued at 9.7x P/sales which is higher than the other logistics services companies. Hence, we recommend investors to “Avoid’ this issue”, the brokerage added.

Hem Securities, a Mumbai-based brokerage firm, recommend “Avoid” for the short term; however, long-term investors, as per the brokerage firm, may “Subscribe” to this issue. The brokerage also highlights that, “the company has been showing rapid growth and extensive scale with its proprietary logistics operating system & vast data intelligence capabilities”. Its network design and engineering with an integrated portfolio of logistics services & strong relationships with a diverse customer base look strong. That apart, the company’s extensive ecosystem of partners enables an asset-light business model and extended reach, the brokerage said.

Marwadi Financial Services also has an “avoid” rating for the IPO. “Considering the 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 namely BlueDart and Mahindra Logistics are trading at MCap/Sales of 3.66x and 0.84x”, a report from the brokerage said.

It has assigned an “avoid” rating to this IPO as the company is loss-making with negative operating cash flows and is available at an expensive valuation as compared to its peers.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Gaurav Sharma
first published: May 11, 2022 04:00 pm
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