Bernstein downgrades Delhivery as it sees threat from Meesho’s in-house logistics system

The brokerage firm has downgraded Delhivery, calling the company ‘volatile’ and an ‘unstable ship’.

Delhivery’s shipment volumes are bound to be impacted for a while as Meesho, the largest customer in the third-party logistics space with about 50 percent market share, is moving its deliveries to an in-house system called Valmo, according to a report by Bernstein.

For this reason, coupled with management exits and issues with the company's business execution, the brokerage firm has downgraded Delhivery, calling it ‘volatile’ and an ‘unstable ship’.

“Delhivery is a volatile company. In some quarters, it has struggled with its PTL business, led by Spoton integration issues, and some due to weak Ecom business (Shopee exit, peak season execution issues, etc). Meesho's insourcing is now affecting it. This, coupled with senior management exits, suggests that the ship is still unstable,” Bernstein analysts wrote in a recent note.

This comes after Delhivery slipped back into losses in the March quarter (Q4), after a surprise profit in the December quarter. While the company registered a net loss of Rs 68.5 crore in Q4, its revenue from operations rose 12 percent from the corresponding period last year to Rs 2,076 crore.

According to the brokerage firm, Valmo currently handles 20 percent of Meesho's total volumes and plans to increase this to 40 percent in the next few months. Further, Valmo has established a reach of 5,000 pin codes and claims that its cost per parcel is about 5 percent lower than that of 3PLs, and it sees a scope of 5-7 percent more savings in the next 12-18 months.

Meesho has said earlier that Valmo is not a logistics arm by itself, but a system to modularise the delivery network in which multiple players can participate.

“Furthermore, Meesho is a low-AOV (average order value) platform that requires low logistics costs. This cost advantage can only be attained by handling more parcels through its network. Hence, we do not see Meesho stopping at 40 percent. Observing other global platforms like Shopee, MELI, and Coupang, it is evident that platforms tend to target the majority of volumes for in-house logistics,” the Bernstein analysts said.

“We believe that Valmo's claims of lower costs than 3PLs may stem from its current concentration in urban clusters. More clarity on cost advantages will emerge as it penetrates deeper into Tier 2+ towns. In the meanwhile, we expect Delhivery's growth in e-commerce volumes to be impacted and remain volatile,” they added.