Brokerage house Credit Suisse and IIFL have opposite views on the recently listed Delhivery stock.
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Since Credit Suisse believes that the industry structure is favorable right now, it is bullish on the stock. The brokerage house has initiated coverage on Delhivery with a target price of Rs 675.
According to it, India’s ecommerce industry is growing at 30 percent per annum and within that, Delhivery has around 24-25 percent market share.
On removing the captive logistics space, which is Amazon’s own logistics arm or Flipkart’s own logistics arm, 60-65 percent market share is owned by Delhivery itself and as that scales further, it will also deter new players, which is what makes Credit Suisse bullish on the company.
Credit Suisse expects a 29 percent revenue compounding over the next three years with EBITDA margin to expand from 1 percent in FY22, all the way up to 5.5 percent.
However, the firm has discounted the company from FY30 in terms of an EV to EBITDA, and the multiple that they are giving is around 24 times FY30 EV to EBITDA. So that is something one will have to watch out for.
As per their estimates, the stock is currently trading at 135 times FY25 price to earnings and that exactly is the bear case for the company.
That's why IIFL Securities has a sell rating with a target price of Rs 442 on Delhivery.
IIFL Securities believes that at these valuations, the risk-reward is extremely unfavorable. While they also expect a 27 percent revenue compounding over the next three years, they need to see how the company improves its operating efficiency as the costs for the company are mostly variable. Will they be able to pass on or not is the big question.
Delhivery, the recently listed logistics tech company, reported a more than two-fold increase in its revenue to Rs 2,072 crore in the quarter ended March 2022, compared to Rs 1,003 crore a year ago.
Delhivery also posted operating profitability with an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of Rs 72 crore.
Sahil Barua, MD & CEO, Delhivery said that the company has broken at an EBITDA level — which is operating profits.
"We continue to invest in building capacity and so if you look at our non-cash expenditures, depreciation, amortization have grown. We typically spend close to about 6 percent of revenue on capex, we expect that to decline to 5 percent over the next year or so. Our estimate is that profitability will continue. It should take 6-8 quarters, hopefully, for us to turn free cash flow positive,” said Barua, in an interview to CNBC-TV18.
Watch the accompanying video of CNBC-TV18’s Mangalam Maloo for more details.