Delhivery Rating: Reduce – Relying on past track record in network infra

Operationally, Delhivery is well-positioned to drive a 26% decadal Ebitda CAGR, much ahead of sectoral volume growth prospects. Its diversified customer & business mix should protect it strategically from changes in the industry structure. The CMP does not factor in a growth moderation in e-commerce sector volumes and limitations to the pace of share gains in the PTL (Partial Truckload) business. We initiate with a Reduce rating and a DCF-based FV of Rs 540.

Past decade of investments make Delhivery well-placed to grow market share, margin and TAMWe expect Delhivery to record an Ebitda CAGR of 26% over FY2025-35E, much ahead of the sectoral growth prospects in its current segments. We expect such an outperformance to be driven by a combination of Delhivery gaining market share in its existing lines of work, growing profitability and entering the large-sized Slow Part Truck Load segment. The key hypotheses are: (i) Delhivery’s ability to continue scaling up its presence; and (ii) Delhivery retaining a part of the incremental cost deflation benefits. On scalability, we rely on Delhivery benefitting from and sustaining past track record of investments in network infrastructure and technology.

We expect 26% revenue CAGR over FY2022-25E and FCF generation from FY2026Adjusted for SpotOn, we see 26% revenue CAGR over FY2022-25E. We are ~6% below consensus, as we factor in a moderation in sectoral e-com activity and limitations to how fast Delhivery can grow the PTL business from current scale. We expect adjusted Ebitda margin to improve to 7.6% from 1% over FY2022-25E.

Initiate with REDUCE and a DCF-based FV of Rs 540In our DCF-based FV, we factor in a healthy ~24%/26% CAGR in revenues/service Ebitda over FY2025-35E, 10%/11% over FY2035-45E and 5% terminal growth; corporate overheads growing at a slower 16%/8% CAGR over FY2025-35E/35-45E; and modest improvements in capex intensity and working capital on incremental sales.