Delhivery IPO opens today: Should you worry before subscribing to it?

New Delhi: The Rs 5,235 crore initial public offering (IPO) of Delhivery will kick off for subscription on Wednesday, May 11. The company will sell its shares in the range of Rs 462-487 per equity share.

The company will raise Rs 4,000 crore via issuance of fresh equity shares with a face value of Re 1 each, whereas its existing shareholders and promoters will offload shares worth Rs 1,235 crore via offer for sale (OFS) route.

Investors participating in OFS include Deli CMF (Fosun Group), CA Swift Investments, SVF Doorbell, and Times Internet. The company had trimmed its offer size from Rs 7,460 crore as planned earlier.

The issue is open for subscription till Friday, May 13. Investors can bid a minimum of 30 equity shares and in multiples thereafter.

The net proceeds from the fresh shares will be utilized towards the company's organic and inorganic growth initiatives via acquisitions and other strategies.

Gurugram-based Delhivery is the largest fully integrated logistics services player in India by revenue. It has built a nationwide network in every state, servicing 17,045 PIN codes or 88.3 per cent of the 19,300 PIN codes in India.

It became a unicorn in 2019 when it raised $413 million in Series F round led by SoftBank Vision Fund. Delhivery provides a full range of logistics services, along with various value added services.

The company has allocated shares aggregating to Rs 20 crore for its eligible employees, who will get a discount of Rs 25 per equity share during the bidding process.

The company has reserved 75 per cent of the net offer for qualified institutional buyers (QIBs), whereas non institutional buyers (NIIs) will get 15 per cent allocation. Remaining 10 per cent shares will be given to retail bidders.

A day before its IPO, Delivery allocated a total of 4,81,87,860 equity shares to anchor investors at Rs 487 apiece, aggregating the transaction size to Rs 2,346.74 crore, according to a circular uploaded on the BSE website.

Anchor investors included AIA Singapore, Amansa Holdings, Aberdeen New India Investment Trust Plc, Goldman Sachs, The Master Trust Bank of Japan, Government of Singapore, Monetary Authority of Singapore, Fidelity, Tiger Global Investments Fund and others.

Kotak Mahindra Capital, Morgan Stanley India, BofA Securities India and Citigroup Global Markets are managing the share sale, whereas Link Intime India is the registrar to the issue.

After the recent rout in startup and platform stocks, brokerage firms say investors should take a long-term call on such counters. However, those recommending to avoid the IPO are concerned about lofty valuations, mounting losses, negative cash flow and rising operational costs due to rise in fuel prices.

Let us have a look at what brokerages have to recommend about Delhivery IPO:

YES Securities
Rating: Subscribe for Long Term
Delhivery is the largest and fastest growing 3PL express parcel delivery player with unified infrastructure network and proprietary technology stack and capabilities. Experienced professional management team and strong relationship with diversified customer base are other big pluses.

"We believe Delhivery’s asset light business model and its cutting‐edge engineering and automation capabilities along with its new age technologies will help the company leverage its operating efficiencies and improve the profitability in the coming years," it added with 'Subscribe' rating.

Choice Broking
The company with its integrated services, investments in technology & engineering and network & scale-driven efficiencies is well positioned to benefit from expansion in the logistics market, said the brokerage firm.

"At a higher price band of Rs 487, Delhivery is demanding premium valuations to peer average," it added. "Considering the company’s loss making operations, we are assigning a 'Subscribe with Caution' rating for the issue."

Reliance Securities
Rating: Not Rated
Delhivery has an integrated platform with a full range of supply chain services, vast amount of data intelligence, and rapid growth at scale, said Reliance Securities.

"The continued losses and aggressively priced IPO hardly leaves anything meaningful on the table for investors with a medium-term perspective," it added.

Samco Securities
Rating: Avoid
"We expect that the company will continue to experience increasing cost pressures, at least in the short term, due to rising fuel costs," said Yesha Shah, Head of Equity Research, Samco Securities, highlighting its aggressive pricing.

Considering the current increasing interest rate environment, where valuations of high growth companies across the globe are taking a beating, Delhivery’s expensive valuation is a concern, she added with an 'avoid' rating on the issue.

Marwadi Financial Services
Rating: Avoid
Considering the TTM sales of Rs 5,813.2 crore on a post issue basis, the company is going to list at a mcap/sales of 6.07x with a market cap of Rs35,283.2 crore whereas its peers namely BlueDart and Mahindra Logistics are trading at mcap/sales of 3.66x and 0.84x.

"We assign 'Avoid' rating to this IPO as the company is loss making with negative operating cash flows," the brokerage said. "Also, it is available at an expensive valuation as compared to its peers."

Religare Broking
Rating: Not Rated
Religare Broking has cited higher losses and higher competitive industry as two risks to the issue. It has suggested investors to wait for a meaningful revival in financials.

"We believe the company is progressing well on the revenue front," it added. "The past trend of start-up IPOs with loss-making history is not encouraging."

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)