Buy Delhivery; target of Rs 400: Emkay Global Financial

Emkay Global Financial's research report on Delhivery

Delhivery announced the acquisition of Ecom Express – the second largest 3PL B2C operator, for a cash consideration of Rs14bn, valuing the company at 0.6x EV/sales (on FY24 numbers). The combined entity would command ~55-60% market share of the 3PL B2C express market, dwarfing the immediate peer by ~3x. Apart from scale benefits, given that both operators service ~97% of pincodes in India, we believe there are significant cost synergies to be realized over the next 12-18 months. Improvement in network utilization, especially in the last mile (~50% of linehaul costs in the B2C express segment), should aid profitability in our view, once networks are integrated. While valuations are fairly attractive, the acquisition is unlikely to be earnings accretive in the near term. With majority of customers being common between the two and given the learnings from the Spoton acquisition, we expect sales retention and network integration to be relatively smooth. However, concerns around Meesho increasing insourcing of logistics would continue to cast a shadow on the volume trajectory in the near term.

Outlook

We retain BUY on Delhivery while cutting our DCF-based TP by ~6% to Rs400 (Dec-25E).