Initiating the coverage of Delhivery, Credit Suisse has pinned an ‘Outperform’ rating while IIFL Securities has taken a different approach and initiated at ‘Sell’.
Delhivery share price has gained more than 15% over the IPO price so far since listing last week. Although the performance of Delhivery shares has been decent amid a volatile stock market, analysts are divided on what the future holds for the stock. Initiating the coverage of Delhivery, Credit Suisse has pinned an ‘Outperform’ rating while IIFL Securities has taken a different approach and initiated at ‘Sell’. The logistics service provider raised Rs 5,200 crore from the IPO market earlier last month, receiving a tepid response from investors.
Credit Suisse: Outperform
Target price: Rs 675
Initiating the coverage of Delhivery, Credit Suisse said that there is a deep moat with scale, growth and profitability. The brokerage firm finds the industry structure favourable with structural growth in e-commerce volumes, and strong moat and leadership in extant scale, network and technology. To add to that, the recent breakeven, with incremental growth aiding profitability has also been noted as a positive.
The brokerage firm said that they prefer Delhivery over internet peers as the firm has no customer acquisition cost, diversified growth in e-commerce as well as broader logistics, and cheaper valuation for the same growth play. On the other hand, pricing, competition, pullback in private financing affecting sector growth, multiple investors, co-founders, and volatility from a lack of profit are key concerns surrounding Delhivery.
Base case target price has been pinned at Rs 675 per share, but the blue sky scenario sees the stock at Rs 800 per share. The bear case scenario has the target price fixed at Rs 300 per share. Base case target suggests 27% upside.
Target price: Rs 442 per share
The domestic brokerage firm said that valuations seem to be building-in the seamless strategy execution of rapidly scaling-up revenues, containing costs, cutting yields and yet turning profitable in a sustainable manner, hence the Sell rating. “We like the company’s focus on automation, scale and vigour for growth, but believe it is walking a tight rope, given the execution challenges,” they added.
IIFL likes Delhivery’s scaling up, as the company has set up a pan-India B2C express logistics network in only 11 years. However, IIFl has flagged concerns. “Niche logistics sector-players have similar asset light models, but compete on differentiated services vs on price alone and, hence, record 10-15% Ebitda margin. With ~85% of overall costs being variable, it needs to be seen how Delhivery intends to improve its operating efficiency, gain leverage, pass on the chunk of such gains to consumers, and yet log a meaningful Ebitda margin in the absence of any significant price increase,” they said.
Delhivery is believed to be offering unfavourable risk-reward and hence IIFL said they would await a better entry point. The target price suggests 17% downside.