Delhivery share coverage initiated by ICICI Securities, Morgan Stanley; check target price

Delhivery’s asset-light model has also caught Morgan Stanley’s eye, where analysts believe this could drive strong return ratios.


Delhivery shares made their stock market debut in May this year with marginal gains and in the little over a month post listing, shares have remained in the same region. Initiating the coverage of the stock, ICICI Securities and Morgan Stanley see a bright future but little to no upside as valuations remain high. While Morgan Stanley has given the stock an equal-weight rating, ICICI Securities has a ‘Hold’ rating on the stock. “Delhivery’s B2C-heavy business model has a potential profit pool of Rs 63 billion in India in our view (by FY26E). Our base case assumes Delhivery to capture ~25% of the same,” ICICI Securities said. On Monday the stock was trading at Rs 503 per share, up 1%.

“Delhivery’s scale, sound unit economics in express parcel and strong B/S provide competitive advantages in the industry and position it well to drive market share gains, improve margins and deliver superior return ratios,” said Morgan Stanley in a note. Similarly, ICICI Securities was also seen praising the company for its close to 90% of incremental 3PL (non-captive) e-commerce volumes over FY19- 22. “Delhivery has been gaining share through a mix of aggressive pricing and reliable expanding service,” they said. “We expect a similar trajectory to continue,” they added.

Analysts at Morgan Stanley estimate Delhivery already makes mid-teens segment level margins, before corporate overhead costs, in the express parcel business. “We expect Delhivery to achieve a strong revenue CAGR of 29% over F22-26, helped by improving eCommerce penetration and the shift from an unorganized to organized market,” they added. Currently, the company covers 18,074 PIN codes in India out of a total of 19,300 pin codes. 

ICICI Securities sees a potential profit pool of Rs 63 billion by FY26 for Delhivery. “How much will D capture over the next 3-5 years? If it captures 60% of the profit pool, we see the potential of Rs 1,139 billion market cap and a target price of Rs 1,416/share (Rs 1,170/share discounted for two years),” they said. In the case of capturing 40% profit pool, analysts see a potential target of Rs 944/share (Rs 780/share discounted for two years). “ If it captures ~25% of the profit pool, the target price amounts to Rs 484/share (30x FY26E and then discounted by two years) – our base case,” ICICI Securities said. The set base case target price is below the current market price.

Delhivery’s asset-light model has also caught Morgan Stanley’s eye, where analysts believe this could drive strong return ratios. “This (asset-light mode) keeps the business model asset-light, with the potential to drive asset turnover (ex-cash and cash equivalents) to ~2-2.5x over the coming years,” they said. Morgan Stanley said that Delhivery’s valuations are at a premium but justified given its superior growth profile. “Given a superior growth outlook beyond the near term (expect a slow 1QFY23) and better potential for ROIC expansion (vs many global peers) due to an asset-light model, we expect the stock to continue to trade at a premium,” they added. 

Risk rewards for Delhivery are seen to be balanced. Morgan Stanley has a target price of Rs 540 per share pinned on the stock. This implies a 7% upside from today’s levels. 

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