Mutual funds boost holding in Delhivery to all-time high in September quarter

Mutual funds significantly increased their stake in Delhivery, a logistics and supply chain services provider, during the second quarter of the current fiscal year (Q2FY25) to an all-time high.

As of the end of September 2024, 22 mutual funds collectively held a 24.91% stake in Delhivery, equivalent to 18.43 crore shares. This marks a notable increase from the 19.05% stake held at the close of the previous quarter in June, according to Trendlyne’s shareholding data.

Mutual funds have been gradually accumulating shares in Delhivery over time, with the most substantial rise occurring in the recently-concluded quarter. Some of the key mutual funds that raised stakes include SBI Equity Hybrid Fund, which now holds an 8.89% stake in the company, Mirae Asset Large & Midcap Fund, which owns a 6.13% stake, and HDFC Mid-Cap Opportunities Fund, which has a 3.72% ownership.

This increase comes as the Canada Pension Plan Investment Board (CPPIB) completed the sale of its remaining shares in Delhivery during the quarter. CPPIB offloaded its 3.18% stake, or 2.34 crore shares, through multiple block deals in July, generating approximately ₹910.2 crore.

Before Delhivery’s IPO in May 2022, CPPIB had been a major investor, holding about 4.38 crore shares. In April this year, CPPIB sold 2.04 crore shares for ₹908 crore.

As of Q2FY25, foreign institutional investors (FIIs) remained the majority shareholders in Delhivery, holding a 55% stake. The remaining 16.4% ownership is with the general shareholders, Trendlyne data showed. 

Stock remains below IPO price

Delhivery's shares have shown a notable recovery in recent months but are still trading below their IPO price of ₹487. The stock, currently at ₹408, has seen a decline of 16.22% from the issue price. Domestic brokerage firm Kotak Institutional Equities in its latest note revised the price target on the stock downwards to ₹500 apiece from the previous target of ₹560, while maintaining its 'buy' rating.

The brokerage adjusted its estimates, factoring in a single-digit year-over-year growth in express parcel volumes for Q2 and Q3, considering the shift of Meesho’s volumes to Valmo during this period.

The near-term impact on third-party logistics providers like Delhivery remains uncertain, particularly during the initial stages of Valmo’s entry into the logistics market. This phase might involve absorbing cash burn to either develop new business opportunities or mitigate the potential influence of third-party logistics providers on pricing over time, said the brokerage.

Kotak now projects an 8% and 13% year-over-year growth in express parcel volumes for FY2025 and FY2026, respectively. This forecast also considers the impact of quick-commerce models on the e-commerce sector, as Delhivery's rapid delivery service, offering 4 to 6-hour delivery, is still in the early stages of development.

The strength of its Q1 print for Express Parcel’s service margin is encouraging, said the brokerage, however, it notes the risk from peers using internal and external proceeds to bring down pricing in the near term to gain relevance in non-Meesho customer sets.

In this context, the brokerage noted that the company is likely to focus on expanding gross margins by leveraging improvements in its cost structure rather than implementing price hikes. Additionally, the company aims to maintain strict control over corporate costs, providing further potential for margin enhancement.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.