The report pointed out that Delhivery gained substantial market share in FY22, from 15-16% in FY21 to 22-23% in FY22.
“While some market share gains were led by general fragmentation of shares in the Indian e-commerce space, some were led by new clients such as Shopee and the scale-up of players such as Meesho,” it said.
Bernstein also said that while the year-on-year growth in Delhivery’s e-commerce parcel volumes are expected to stay in the 14-17% till FY30, its market share will continue to slip with other third-party logistics players looking at potential gains.
On Delhivery’s financial performance, Bernstein said that “a host of issues largely centred on the execution/integration of its acquisition has made FY23 its worst-ever year for growth”, referring to Delhivery’s acquisition of Spoton. “From what we hear from management (and we believe them), most of the challenges it faced last year have been resolved, allowing Delhivery to return to a growth path,” it said.
An emailed query sent to Delhivery did not elicit a response.
Discover the stories of your interest
Market share risks
The brokerage firm said that the structure of market share in the express parcel segment will dictate the volume growth for Delhivery going ahead.
As of FY23, around 50% of the e-commerce parcel volumes are handled by captive players like Flipkart and Amazon, while Delhivery had 21.5% and other logistics players like Xpressbees, Ecom Express and Shadowfax holding the remaining approximately 29%.
Bernstein ascribed the reason for a drop in volume growth for Delhivery to the closure of online marketplace Shopee.
Last year, Singapore’s e-commerce company Shopee decided to shut its operations in India just about six months after entering the country. The etailer, which competed with the likes of Meesho, Flipkart and Amazon India, especially at the lower-end of the market, shuttered its business effective March 29, 2022.
“Shopee’s exit impacted volume growth for Delhivery. However, the impact will moderate from the March quarter as Shopee exited in the March quarter last year,” the report noted.
Further, Bernstein noted that demand for third-party logistics (3PL) players was dependent on decisions taken by captive logistics arms of Flipkart and Amazon on whether to restrict overall volumes to third-party players or not.
“However, there is room for fragmentation of the ecommerce market with the emergence of several players in the market. Reliance is gaining market share in the overall e-commerce space and largely follows a 3PL logistics strategy. Meesho, a social commerce-based 3P platform, while vertical players such as Nykaa are also gaining scale,” it added.
Execution challenges
Bernstein flagged that the integration of Spoton with Delhivery after the company’s initial public offering (IPO) in May 2022 “did not go as planned, leading to a loss of customer confidence”.
It added that as a result, the company’s part-truck load (PTL) business saw a volume reduction from 456,000 tonnes in March quarter of FY23, to 258,000 tonnes in the December quarter. The PTL business offers express deliveries for B2B customers.
“Going forward, we have built in a gradual improvement in PTL volumes with Delhivery achieving the lost volumes by end of FY25. For e-commerce volumes, we have built in mid teens growth to sustain in the next two years,” it noted.
“Delhivery showed significant promise of growth ahead of its IPO. The story was about the high-growth e-commerce market and how Delhivery will sustain/win share due to its unique model (and scale) and grow at over 30-40% run rate. The growth and margin disappointments suddenly after the IPO are not just a mystery but a case of poor execution. To that extent, this serves as a red flag when evaluating the company. This will heal only after a string of successes,” it added.
In August 2021, Delhivery acquired Bengaluru-based Spoton Logistics to strengthen its business-to-business (B2B) vertical. The deal, an all-cash transaction, was estimated to be worth $300 million.
“Delhivery has to learn from its mistakes and develop more maturity in its execution capabilities. Pricing is one of many variables in this industry, and high uptime and low error rates are crucial; otherwise, it is difficult to win back business once the trust is lost,” the Bernstein report pegged.
The brokerage firm set a price target of Rs 360 per share on Delhivery’s stock. On Wednesday, it ended trading at Rs 327.80 on the BSE.