Delhivery shares: Kotak Equities upgrades stock to ‘Buy’, raises target price; sees over 24% upside

Delhivery share price gained nearly 2% on Tuesday after brokerage firm Kotak Institutional Equities upgraded its rating on the stock to ‘Buy’ from ‘Add’ and raised the target price to ₹570 per share from ₹500 earlier, implying an upside of over 24%.

Analysts at Kotak Equities said their assessment of the positioning of the players’ e-commerce ecosystem and recent developments makes them more confident of increasing the relevance of Delhivery over time. 

The increase in FV of 14% is driven broadly equally by higher revenue CAGR (~20% over FY2024E-32E) and higher adjusted EBITDA margin (50-250 bps).

Its growth assumptions factor in Amazon and Flipkart growing their captive business at 80% of the pace of their volume growth, helping Delhivery gain share. 

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"We increase our adjusted margin estimates due to the impact of faster growth and a higher gross margin on incremental revenues of express parcel and PTL segment—we build ~10% adjusted EBITDA margin in FY2028, implying gross margin on incremental revenues lower than the 30-50% guidance,” Kotak Equities said.

The brokerage notes that, unlike Delhivery, its peers have not been able to meaningfully improve cost structure with higher volumes and have seen their losses accelerate faster than sales. Also, the company’s peers have limited defense against the unrelenting pricing pressure of Delhivery.

“Losses of Delhivery’s competitors in express parcel have only accelerated with accelerated growth. Some of these peers have a large concentration to Meesho and a limited presence with Amazon and Flipkart or to PTL business. The pressure on peers likely started with Delhivery lowering its pricing meaningfully in FY2022,” Kotak Equities said.

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Moreover, the brokerage firm believes the Delhivery business model will magnify gains from volume gains.

“Delhivery is invested in terms of infrastructure for the next 25%/40% of growth in Express Parcel/PTL business and expects meaningful operating leverage from incremental growth. It is working on investing in setting up a common warehouse management system for clients, new service offering in PTL business, and in building awareness in the retail/SME part of the market,” said Kotak Equities.

Delhivery share price has gained over 17% in three months and more than 35% in the past one year.

At 12:30 pm, Delhivery shares were trading 1.04% higher at ₹463.40 apiece on the BSE.

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