Should you buy, sell or hold Delhivery after three-fold rise in net loss in Q1?

Brokerage firms have majorly downgraded the recently-listed e-commerce startup Delhivery after the company reported a disappointing performance in the June 2021 quarter.

The logistics services provider reported a net loss of Rs 399 crore for the quarter ended June 30, a more than three-fold increase from the same period last year. The net loss was Rs 129 crore in the first quarter last year.

Revenue from contracts with customers rose by 33 per cent on a yearly basis to Rs 1,746 crore during the quarter. Revenue from services in Q1 FY23 increased by 30 per cent to Rs 1,746 crore from Rs 1,344 crore recorded in Q1 FY22.

Freight expenses rose 67 per cent to Rs 1,452 crore, the company said in a regulatory filing. Inflation also contributed to its rising costs, it added.

Challenges in integrating Delhivery's partial truckload business with its acquisition of Spoton and the exit of Singapore-based ecommerce company Shopee created excess capacity in Delhivery's operations, leading to higher costs.

Delhivery is the largest third-party logistics player in the ecommerce space and could be considered a bellwether of broader industry trends.

Gurugram-based Delhivery made its debut on the bourses in May 2022 as the company raised Rs 5,235 crore via its primary offering as the company sold its shares for Rs 487 apiece.

Credit Suisse has downgraded Delhivery to neutral post June quarter results with a target price of Rs 675 which translates into an upside of over 5 per cent from Rs 642 recorded on Monday.

The negative operating leverage, but the long-term advantages are intact, said the global brokerage. "We revise EPS by -280/-14/-18 per cent for FY23/24/25E, said the note. Adjusted margins fall at -12.5 per cent on subscale utilisation."

ICICI Securities has also downgraded the stock to sell from hold rating with a target price of Rs 484, hitting a 25 per cent downside in the counter as the brokerage sees a spot on integration challenges in the June quarter.

"Delhivery’s B2C-heavy business model has a potential profit pool of Rs 6,300 crore in India by FY26E," it said. "Our base case assumes Delhivery to capture about 25 per cent of the profit pool." Higher share of the profit pool by Delhivery is an upside risk, the brokerage added.

Delhivery has seen another downgrade from Edelweiss to hold with a target price of Rs 620 after Q1 performance as it believes that all positives have been baked in and a 30 per cent post listing rally has rendered risk–reward unfavourable.

Revenue and profit were impacted by shopee shutting shop in India, which hit express parcel volumes, SpotOn’s operational integration delays, which led to voluntary volume cuts, it said. "We are cutting FY23–25E revenue by 6-7 per cent and EBITDA and PAT estimates."

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