IPO Size: Rs. 5,235 cr –
- Rs. 4,000 cr is fresh issue for (i) organic growth (Rs. 2,000 cr) (ii) unidentified inorganic growth (Rs. 1,000 cr) and (iii) general corporate purpose
- Rs. 1,235 cr is offer for sale (OFS) by Softbank, Carlyle, Times Internet, Deli (China Momentum Fund) and 3 senior employees.
Price band: Rs. 462-487 per share
- 75% reserved for institutions as loss making
M cap: Rs. 35,300 cr, implying 15% dilution
IPO Date: Wed 11th May to Fri 13th May 2022, Listing 24th May 2022
- Is IPO being launched in a rush to close before 15th May, to comply with US SEC regulations without presenting Q4FY22 financials?
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Delhivery serves 17,500 pin codes of 19,300 active in India, enjoying 22% market share express (e commerce) delivery, which accounts for 60% of its Rs. 4,800 cr revenue of 9MFY22. However, 44% of revenue is concentrated among top 5 customers. In this backdrop, company has increased rates for aggregators, which may negatively impact revenue. A professionally managed company, without any identifiable promoter (similar to Zomato, Paytm, PolicyBazaar, CarTrade), company’s single-largest shareholder Softbank is looking to trim 22% holding to 19%.
Losses to Continue
While revenue grew from FY21’s Rs. 3,646 cr to Rs. 4,810 cr in 9MFY22, so did adjusted loss before tax, from Rs.335 cr in FY21 to a staggering Rs. 382 cr in 9MFY22! Freight handling costs are 72-75% of revenue, employee expenses 20%, technology investment 5%, leaving limited scope for profits. No wonder then, that even after 10 years of operations and being India’s largest logistics company, adjusted EBITDA is negative, at minus Rs. 35 cr for 9MFY22 over minus Rs. 253 cr in FY21. We are also intrigued how financials ‘strengthen’ in a run-up to the IPO. Interestingly, Zomato’s contribution margin had touched 4% before its IPO but have since steadily declined to current ~1%, after 3 quarters post listing.
Company adjusts EBITDA for non-cash ESOPs expenses which will continue post listing, dragging profitability, as seen in recent new-generation listings PolicyBazaar and CarTrade. Thus, even though ‘adjusted EBITDA’ may turn positive, reported EBITDA may continue to be negative.
Asset-Light, yet Need for Capital
Most infrastructure like logistics facilities, delivery trucks etc. are taken on lease making the business model as asset-light. Despite that, over Rs. 9,000 cr of equity capital has been raised (and another Rs. 4,000 cr now) till date to fund growth, acquisitions and losses. In comparison, Nykaa, which is also an asset-light new-age business started 10 years ago, raised merely Rs. 1,100 cr primary capital (including in IPO), implying much better return on capital and leverage of technology.
Cash Rich Company
Company holds cash equivalents of Rs. 1,700 cr, as of 31.3.22, making fresh issue objects of unidentified inorganic targets and general corporate purpose, aggregating ~35% of fund raise (and just about complying with SEBI’s new IPO norms), quite unnecessary. This cash on hand is massive as, in the past 5 years, total 7 acqusitions made aggregating to about Rs. 2,000 cr, with only Spoton being a large buy, worth Rs. 1,520 cr in Aug 2021. The large fund issue clearly indicates company is trying to make hay while the sun is still shining!
Spoton was acquired by Delhivery at historic revenue multiple of 1.9x, while 9 months later, when investors’ risk aversion has nose-dived, Delhivery’s own IPO is valued at 4.8x annualised 9MFY22, making it extremely pricey. Technology stack cannot be valued so aggressively, especially when it is integral to business and not separately monetizable.
Listed MNC logistics peer and German DHL’s subsidiary, Blue Dart Express is ruling at revenue multiple of 3.6x, despite clocking 23% EBITDA margin in FY22. Since logistics is a scale-business and Blue Dart is highly profitable, even on a lower topline of Rs. 4,400 cr, something does not meet the eye in Delhivery. Even in the most optimistic scenario, it is atleast a dozen quarters away from +20% EBITDA margins.