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Hi @Surender

Apologies for the delayed reply.

Given how poor the sentiment, probably justified, it takes a lot of leap of faith and assumptions to invest in these companies. So, please carefully look at the assumptions I made & comparisons to the companies I made to arrive at my valuation. Also, since I’m entirely mostly invested in high growth high valuations companies, I have the inherited tendency to conclude what might be expensive valuation as OK.

FY26 is the latest by we have to venture in case we have to make any sensible arguments. So, my estimates are:

Revenue: 15,000 crore.
Gross Margins: 55% plus.
Net Profit Margins: 8%.

1. Looking at Q2, 2023 numbers, the company is for all practical purposes break even. I think by Q4 the company will decisively turn positive. From there the operating leverage must kick in in a big way. For Q2, for the incremental revenue over Q1, the company made 50% gross margins. So, 55% in future is doable. UPS operates at 70%, FedEx at 65%.

2. The growth for FY23 full year would be 20% including the Shopee numbers in FY22. So, the moderate growth of 20% is on top of humongous growth in FY22. From there 25% growth is doable, I think.

3. Scale, efficiency, operating leverage, growth, technology led operations, debt free balance sheet (3000 crore cash in b/s which will not be burned as the company turns black).
   Re-iterating, scale, scale, scale is the mantra for Delhivery. This is where I believe Delhivery will better Bluedart. Industry positioning is good & the managements are really aggressive, they learn fast, adapt & move on. The volumes, utilisation, operating leverage must help them at revenues cross 2 billion USD.
   The investments in technology & the network they built grounds up is possible to make them cheapest service provider compared to its competition.

The logistics is commodity in a sense that the customer does not care as one as the logistics company can delivery on time & without defect. This is where I believe Delhivery’s network efficiency & technology built in-house will help over competition.

4. When you are the lowest cost operator, the best way to get operating leverage is to grow aggressively & ensure that expenses, corporate overheads grow lower than revenue – which I think is very much possible. As per them, they are the lowest across mid, last, first mile. Not sure how to verify this, but the revenue growth must testify this, no? Otherwise, growing aggressively is not possible.

5. I think the dead space utilisation is possible maximum in e-commerce business where Delhivery is the leader & so I think over time these guys should better Bluedart margins. Sahil alluded that they are trying to cross utilise assets across e-commerce, PTL, D2C, C2C – not sure how feasible is this? Slim chances but if they can do it, then it’s a snowball. For this to happen, they need market shares across segments. Competition will not allow this to an extent.

6. New company emerging from logistics industry & leapfrogging is next to impossible. With the funding environment now, by the time funding comes back, Delhivery should become considerable entity in logistics. For all practical purposes, the logistics industry will be dominated by the current ones minus some will die.
   Even otherwise, new company in any other sector like Insurance, Banking, e-commerce making a dent in the currently established ones is not possible.

7. I think SpotOn was the biggest acquisition they made & it is a good one actually. It is profitable & is growing at 20% in PTL. I still think Delhivery found SpotOn integration challenging, probably they were over confident, under estimated. The management in Q2 call says, all is done & dusted & will grow from now on Q over Q.

The big elephant – valuations:

With 1200 crore profit in 2026E, giving it 30 times makes it 36,000 crore market cap. ESOP costs would be minimal in 2026 Which is where it used to trade before this brutal correction from 550 to 310. Even good results, the reaction is muted & with the guidance they provided, severe punishment was forthcoming.

Why 30 times? Dmart trades at 55, Pidilite at 52, Page at 42 times 26E. Average is 50 times & I gave 40% discount to these stalwarts. Not sensible comparison, I’m aware. But I think the industry positioning of Delhivery in logistics is similar to the above companies in their respective industries.

Some consumer companies that are huffing & puffing to grow at 12-15% are trading at ridiculous valuations. I’m tempted by high revenue growth & getting profitable in future because of a sound business model.

I have one specific-to-me-bias here, soon after I sold, it fell 40%, so a company where I had strong long term conviction but exited due to short term blip is available at 40% discount – was tempting for me to get back in. Not much to lose here, probably 10-15% was my thought. Valuations are also aligning as per my personal & subjective taste.

Disclaimer: I hold, bought recently & may sell anytime, particularly below 300. I have been terribly wrong so far. My exiting due to stop loss being hit was my saviour in all these tech-companies and then re-entering 15% below selling price.