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-------- Notes (rephrased per my understanding) from FY23 AR -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Guiding principles:
- Improve supply chain operations efficiency and pass a meaningful proportion to customers
- Invest in creating a large-scale infrastructure and network that meets a wide variety of customer requirements
- Continue upfront technology investments for higher network reliability and speed.
- Continue ESOPs to attract and retain high quality talent
- Continue to communicate regularly and transparently with shareholders
FY23 performance update:
- Overall network speed improved to ~3.6 days with 91%+ service reliability across entire network
- Incremental margin [the margin on every incremental rupee of the revenue] >50% in the transportation business
- Invested further in building strategic infrastructure and deploying cutting-edge software, data products, industrial automation, and robotics systems across our network.
- New automated terminals at Bhiwandi and Bengaluru
- Automated parcel sortation capacity increased to 5.4 million packages/day [+35% YoY]
- Trials with Automated Guided Vehicles (AGVs) to reduce manual handling and effort
- Inducted 387 new tractors into our fleet, taking the total count to 562. Expect to see deployment of tractor trains on select routes in late FY24.
- Launched Delhivery One, which is well suited for SME and D2C customers. It enables customers to directly access all the logistics services and data solutions through a single interface.
- Orion (Truckload exchange) is now the single source of capacity for Delhivery’s intercity trucking demand (internal contracted and on-demand) beside servicing external customers and our Supply Chain services division.
- Continued to acquire new customers and integrate operations more effectively across our newer lines of business: Supply Chain, Truckload and Cross-Border services.
- Investments in Vinculum and Algorhythm have expanded value proposition to e-commerce and enterprise customers. For instance, we maintained leadership in the key growth segment of D2C e-commerce (>75% growth in FY23) through a combination of acquired order management solutions, warehousing and transportation capabilities.
- Continue to work with financial institutions to identify ways to lower financing cost for our clients and partners, thereby reducing the indirect supply chain costs.
- We believe we have immense value creation opportunities through our data solutions and through the OS1 platform and will continue to invest in these in FY24 and beyond.
Key differentiators:
- Integrated full range of logistics services
- In-House developed logistics platform with 80 applications that orchestrates all the services
- Data based decisions for geo-location, network design, route optimization, load aggregation, ETA prediction, product identification and fraud detection
- Automated sortation centers, and material handling systems, system directed floor operations, path expectation algorithms and machine-vision guided truck loading systems
- Interoperable network that allows to share infrastructure and operational capacity across business lines and set new service standards, such as providing e-commerce-like turnaround times to traditional part-truckload shippers on several lanes.
- Invest only in critical service elements and IP-sensitive areas of the network, while delivering services through many network partners who own warehousing, freight (truckload or air) or first/last-mile capacity. The systems of your Company match partner capacity with Delhivery’s internal and third-party client demand based on partners’ service quality ratings and pricing. This approach minimizes fixed costs and enables the Company to scale as per market demand.
Algorhythm Tech:
A software company that offers comprehensive, end-to-end supply chain planning & execution solutions. The platform consists of a dozen products designed to deal with various problems in manufacturing, supply chain, and sales & distribution processes.
Subsidiares and JV:
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-------- Notes (rephrased per my understanding) from conference calls conducted till date --------------------------------------------------------------------------------------------------------------------------------------------------
Overall:
- Provides logistics service using infrastructure and technology that enables buyers and sellers to transact [B2B (business to business), C2C (Customer to business), or B2C | at Domestic or International level] with each other
- Business Segments – Logistics Services: Express Parcel, PTL/LTL (Part Truck Load), FTL (Full Truck Load), and SCM (Supply Chain Management).
- Q1 volumes typically lower than Q2 (end of season sale and Prime Day, Flipkart Founder’s Day), Q3(Diwali, peak season) and Q4(Republic Day, year-end sales).
- India’s addressable logistics market is $200 billion and fragmented. However, India is yet to produce a large integrated domestic logistics company. Expand capacity and be a large player using Delhivery’s technology platform and well capitalized balance sheet by plugging in partners for infrastructure – Land, Building Warehouse, and Trucks - across the country. Technology and data intelligence capabilities differentiate us from the competitors. As the logistics space becomes more organized and consolidates, Delhivery is the natural consolidator of the industry as evidenced by past track record of complimentary acquisitions to acquire either geographic or a customer capability synergy value.
- Asset-light operations: Invest in critical service elements and IP-sensitive areas of the network, while delivering services through many network partners. Network partners with warehousing, freight (truckload or air) or first/last-mile capacity can sign up and find customers via applications. Our systems function as managed marketplaces that match partner capacity with Delhivery’s internal and third-party client demand based on partners’ service quality ratings and pricing. This approach enables us to quickly expand to geographically dispersed locations, optimize loads, improve our cost structure, and maintain flexibility in handling seasonal variations and changes in client requirements while incurring minimal fixed costs and capital expenditures. Platform orchestrates infrastructure and participants across our network.
- Building automated trucking terminals, the technology systems, and acquiring complementary assets to scale the network. Provide mechanism for partners to exposes their truck capacity, orchestrate the demand efficiently into their trucks so that they can drive 18,000+ kilometers a month Note: operate over 12,000 trucks daily. Our own fleet is only about 562 trucks. The tractor trailers were bought to design so that parcel and freight can move together
- Network is a unique mesh, which is fundamentally different from classical hub and spoke models run by other logistics companies across India and the world
- Network is powered by over 80 technology applications, which have been built on a proprietary logistics operating system and platform, and vast amounts of data.
- Seattle office to open out Delhivery’s technology to third party developers and other logistics companies.
- The regulatory environment has improved in the last decade. Logistics has been accorded infrastructure status and there is continued improvement of road, air, and rail infrastructure. Government reforms like Make in India, and PLI schemes are ultimately driving non-discretionary demand for logistics services. Rapid adoption of digitization through GST, e-way bills, EPOD, and E-invoicing, is helping reduce overall inefficiency costs for logistics companies.
- New axle load norms have improved utilization of trucks. And new initiatives by the government such as ONDC and the data privacy law will ultimately drive merchants to have more direct relationships with logistics partners.
- Orchestrate the network using technology and data driven systems.
- 2 Key Performance Indicators: service quality and cost per shipment. If we deliver high-quality service and continue to improve efficiencies internally, market share is a direct consequence.
- Cash Utilization: Massive growth opportunity ahead of us and we shall play the consolidators role. Acquire complimentary networks either from a geographic standpoint or with service specific verticals. Scale the revenue to $5~$10 billion. Hence, continue to make capacity investments to deliver growth and profitability going fwd.
- On a normalized basis, our expectation is that loss and damage should be sub 1% of revenue.
- In every year, margins begin to improve in Q2 till Q4 since Q3 and Q4 are seasonally high quarters. Wage increment and ~70% of Capex happen in Q1.
- Higher unbilled receivables: Delhivery’s system was not fully automated, but it is now close to the final stage. So because of merger with spoton and ongoing automation, billing cycle got extended. In the next two quarters, expect to see a significant improvement.
- Target ROCE of 30% for every business.
- Expect to break-even in quarters of FY24 and generate net profits by early FY26.
- Big macro risks weather and geopolitics.
Management:
- Sahil Barua - MD & CEO [Age: 39 | BE(Mech) NIT Surathkal + PG from IIMB | Director since December 19, 2011]
- Sandeep Barasia - CBO [ Age: 52 Yrs. | — | Director since July 1, 2015]
- Kapil Bharati-CTO [Age: 46 Yrs.| BE(Mech) IITD | Director since August 19, 2021]
- Amit Agarwal, CFO
Strategy:
- Our focus is mid-mile optimization since it is complex to move a large quantity of products across India with speed and reliability in a cost-effective manner. To improve mid-mile efficiency, we have integrated the express and parcel segment by increasing use of 46-foot Volvo tractor trailers, which are 15 ~ 30% more efficient, expanded the automated sortation capacity, and invested in new automation, including autonomously guided vehicles, automated storage and retrieval systems and system direction. At PTL revenue of 4K+ crore, network would provide a near express service at the cost of time-indefinite service and that will be a big inflection point. First and last mile is least differentiated and has flexible capacity.
- Integrated mid-mile’s utilization will not be completely sensitive to express volumes if PTL volumes grow. In that sense, the express unit economics are impervious to changes in express volumes.
- Logistics is cost input to highly cost-sensitive customers. Our approach is to build high-quality, large-scale, & integrated mid-mile operation. Engineer it to be highly productive, reliable, and low-cost. Pass benefits to customers to gain volume and avoid competition.
Express market:
- Highly competitive | Expected Mkt. Growth Rate: 15~20% | Will at least grow at the mkt. rate | Composed of individual parcels that weigh <40 kg and Turnaround time (TAT) of <3 days.
- Beside price, other differentiators are reach of the network, and speed with quality of delivery.
- High incremental gross margin which acts as a tool to fight competition.
- The new D2C brand owners such as Reliance, Unilever, Dabur are not affected by funding winter.
- Aviation is not a preferred mode of transport for packages that cost ~500 rupees.
- Pass on efficiency gains to customers. Makes new categories viable and grows wallet share.
- Top five customers less than 40% of revenue. No customer forms > 14% of revenue.
- Increase in PTL volumes will expand mid-mile utilizations. Hence, improving the unit economics.
- Self-serve portal (Delhivery One) allows small brands to access our services seamlessly, and franchise network plus C2C app allows the extreme long tail to start shipping immediately.
- eCom very small fraction of total consumption. e-Com opportunity supported by increase in online purchase frequency, tier 3/ 4 cities penetration, and new categories.
- ONDC platform: Seek to grow volumes in FY24.
- In-house logistics arm cannot build flexible capacities like third party logistics partners.
- Lowest cost Operator in logistics space - bundled or unbundled at each individual leg.
- Target gross and EBITDA margins for every account.
Capex:
- Do not incur any capital expenditure towards ownership of real estate. Our capital expenditure is focused towards investing in fit-out infrastructure, state-of-the-art (a major share of it is in our integrated mid-mile) automation, IT assets and tractor-trailers (to do design fit outs). Automation includes parcel sorter systems, bag sortation systems, conveyance systems and future-ready technologies such as automatic guided vehicles, automatic storage and retrieval systems and unmanned aerial vehicles.
- Over time we expect capex to stabilize at between about 3 and 3.5% of revenue, which will include both new and maintenance capex for sortation centers and gateways.
- Most capacities built in 1st half of FY. So, 2nd half is a higher depreciation period.
- Expect 2 mega-gateway to go live: Bhiwandi by November 2023 and Bangalore by March 2024.
- Expand hub when see sustained ~ 100% utilization of the hub’s theoretical capacity.
Margin Improvement Levers:
- 50% incremental gross margins on transport business.
- Normalized gross margins in transportation business is 26~30% at 80% capacity utilization.
- Incremental service EBITDA margins in 18~22% range.
- Engineering continues to discover new ways of improving productivity in the mid-mile.
- Increase fleet sourcing from Orion platform.
- Cull or renegotiate with low margin customers.
- Introduce 46-foot trailer in more hubs, conjoined trailers, and EVs in mid-mile operations.
- Prevent revenue leakage, fill trucks to axle payload using algorithms, and consolidate facilities.
PTL | Total shipment weight of 40-1,000 kg:
- Opportunity size $8 to $10 billion, which grows at 10 ~12%. Highly fragmented and unorganized market. The top 10 organized players form less than 20% of the market. Delhivery revenue 2.5%. Aim to gain share. So, growth with margin improvement is the focus instead of yield protection.
- Pricing well established in the market and will be determined by the competitor’s action
- Pickup & delivery costs - 15% to 20%; line haul [trucking] costs - 35% to 40%, load handling costs [manpower] - 5% to 7%. Opportunity to do Gross margin: 25~30% and EBITDA margins 14~20%.
- Yield comparison across competitors misleads. Change in customer mix, and lane distance affects the yield. Our focus is gross margin and EBITDA.
- Entering the economy (time insensitive) space to drive up utilization of mid-mile.
- Post GST, PTL preferred over FTL. In PTL, shift towards organized players and express PTL as it brings down inventory across the supply chain.
SCM (Supply Chain Management):
- Includes Warehousing space (fulfillment centers to store and transport inventory) and software solutions to optimize inventory placement, and fill rates, and transport selection.
- Why preferred? Variable supply chain costs, highest quality, centralize procurement of logistics.
- Early days and hence growth trends look a bit volatile.
Misc. Products:
- Platform (OS1) with base components to build customized logistics applications: It is aimed at small scale operators to build first-party dispatch application. Targeting both the Middle East and the US as potential customers. In conversation with 10 potential customers. It’ll be monetized similar to a standard SaaS product. Start seeing monetization slightly more significantly in the FY25. For e.g., Dispatch One, which allows last mile operators to use our dispatch service.
- IP of transition robotics: one of our models should now be commercially ready by Q3FY24.
- Orion platform: It is platform that acts as a freight exchange to discover the price of truckloads and book truckload freight across the country. Began by exposing spot (10~14%) requirements of trucking or fixed (86%) contracts. Now, expanded to intracity movements.
- Algorhythm’s product enable supply chain planning activities such as optimize inventory placement and transport selection and complements our warehouse management system.
- Vinculum provides order management solutions (OMS) and warehouse management solutions (WMS) to companies in consumer internet space, cutting across multiple categories. Enhances value proposition for D2C brands as it is a direct integration of the OMS with our own WMS.
- Primaseller expands our direct-to-consumer (D2C) value proposition.
- Road piper allowed us to effectively communicate with fleet owners across the country.
- Unified Client Portal and merchant panel allow customers to self-serve.
- Launched Delhivery Direct mobile application allows consumers to self-serve.
- Delhivery Academy provides training and skill development from grassroot to supervisory levels.
Note:
Adjusted EBITDA margins improved from -11.3% in FY19 to 1% in FY22 when we brought down the yield per express parcel from Rs. 92 to Rs. 72 while fuel costs inflated from Rs. 66 to Rs. 93 per liter.
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