GMP, Valuation, Review; Should you Invest?

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Delhivery IPO: The Rs 5,235 crore initial public offer of India’s largest logistics service provider Delhivery will open for subscription today, i.e. Wednesday, May 11 and close on Friday, May 15. The IPO is the second biggest for Dalal Street in calendar year 2022 (CY22) after LIC. The company has set a price band of Rs 462-487 a share for its Rs 5,235-crore initial share sale. The company has registered robust growth with a CAGR of 49 per cent between 2019 and 2021. However, the company has not been able to cut the losses. The primary work of the company includes logistics services. Delhivery offers express parcel delivery, heavy goods delivery, warehousing and payment collection among other things.

Delhivery IPO Price Band

The price band for Delhivery IPO has been fixed at Rs 462-487. Investors can bid for a minimum of 30 equity shares and in multiples thereof. Employees will get a discount of Rs 25 per equity share.

Delhivery IPO Issue Size

The Delhivery IPO issue is around Rs 5,235 crore, consisting of a fresh issue of Rs 4,000 crore, and Offer for Sale of Rs 1,235 crore.

Delhivery IPO Reserved Portions

The company has set aside 10 per cent for retail individual investors (RII). Around 75 per cent of the total offer has been allocated for qualified institutional buyers (QIB). For non-institutional investors (NII), the company has reserved 15 per cent.

Delhivery IPO Share

CA Swift Investments, an entity of Carlyle Group, will offload shares to the tune of Rs 454 crore. SVF Doorbell (Cayman) Ltd, an arm of Softbank Group, will sell shares worth Rs 365 crore. Deli CMF Pte Ltd, a wholly-owned subsidiary of private equity fund China Momentum Fund, L.P. will sell shares worth Rs 200 crore and Times Internet will sell shares worth Rs 165 crore.

Additionally, Delhivery’s co-founders — Kapil Bharati, Mohit Tandon and Suraj Saharan — will sell shares worth Rs 5 crore, Rs 40 crore and Rs 6 crore, respectively.

Delhivery IPO Financials

Delhivery has never reported a profit, according to its share-sale prospectus. The company made a loss of Rs 891.14 crore for the nine months ended December 2021 and posted a Rs 415.7 crore loss in FY21. Revenue was Rs 4,911 crore in the nine months ended December and Rs 3,838 crore in FY21. It reported a negative free cash flow of Rs 246 crore in FY21 versus Rs 848 crore in FY20. Freight, handling and servicing costs rose to Rs 3,480 crore in the first nine month of FY22 from Rs 2,026 crore in FY21.

Delhivery IPO GMP

As per market observers, Delhivery shares are available at a premium (GMP) of Rs 16 in the grey market during the weekend. Delhivery shares have fallen almost 40 per cent in the unlisted market from a peak of Rs 950 apiece in January. The stock is quoting at Rs 550-600 on thin trading volumes, an expert said.

Delhivery IPO Key Risks

As per a pre-IPO note by Motilal Oswal, major risks to the operating model of the logistics player include its heavy reliance on e-commerce, despite diversifying into other industry verticals, dependency on network partners and other third parties for transportation vehicles and manpower, lower barriers to entry in many of the segments in which it operates, and dependency on certain large customers who contribute significantly to its business.

Delhivery IPO: Should You Invest?

Yes Securities | Rating: SUBSCRIBE

The brokerage has given a subscribe rating to the issue as it believes the company’s asset-light business model, cutting‐edge engineering, and automation capabilities will help it leverage operating efficiencies and improve profitability in coming years.

The brokerage has listed a unified infrastructure network, proprietary technology stack and capabilities, vast amount of data intelligence and R&D, and strong relationship with a diversified customer base as key positives of the company.

Angel One | Rating: NEUTRAL

The brokerage has given a neutral rating to the issue citing its expensive valuation. Based on annualised FY22 numbers, at the upper price band, the IPO is priced at an enterprise value to sales ratio of 5.1x and price to book value of 5.2x.

For 9MFY22, the company has reported an EBITDA loss of Rs 232 crores and a net loss of Rs 891 crores.

In terms of revenue, Delhivery posted robust growth of 82 per cent during this period and it is expected to turn EBITDA positive by the FY22-end. A slowdown in e-commerce services in India will impact the company due to its huge dependence on express parcel services, and concentration of select customers. Its top-five customers contribute to 41 per cent of the total revenue.

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