Gurugram-based Delhivery is one of the largest and fastest growing logistics companies in India with a competitive advantage, said Morgan Stanley as it initiated coverage on the newly-listed firm. The brokerage has an ‘equal-weight’ rating on Delhivery with a target price of Rs 540 per share — an upside of 7.9 percent from Thursday's closing price.
The company's valuation is at a premium but justified given its superior growth profile, according to the brokerage. It expects Delhivery's revenue to increase at a compound annual growth rate (CAGR) of 29 percent till March 2026.
“It is the price setter in the market and drives share gains by lowering prices ahead of others. Using positive economics from the express business, Delhivery has seeded other new segments that have the potential to become large without a material increase in cumulative operative cash burn,” according to Morgan Stanley.
The Delhivery stock gave up initial gains amid choppy trade on Friday, falling as much as 1.8 percent to Rs 491.4 apiece on BSE.
The brokerage believes Delhivery has a stronger balance sheet position than its peers, which reduces the risk of irrational competitive behaviour.
However, not everyone on Dalal Street has a positive view on the stock.
IIFL Securities — which has a 'sell' call on Delhivery — is of the view that the risk reward is unfavourable in Delhivery.
The brokerage views the logistics player's operating efficiency as a key monitorable given 85 percent of its costs are variable in nature.
The company continues to grow as fast as the market "if not faster", Delhivery Chief Business Officer Sandeep Barasia told CNBC-TV18. Delhivery has been able to reduce its costs and taken its operating margin to 11 percent from 2.5 percent, he said.
Delhivery aims to turn net profitable by the end of the years ending March 2023 and March 2024. After releasing its financial results for the March quarter, the company had said it would take 6-8 quarter for it to turn free cash flow positive.
Delhivery began its journey in the secondary market last month with a decent debut, and has managed to broadly stay above its issue price since. As of Thursday, the stock changed hands at a premium of 2.7 percent over the upper end of its issue price.
First Published: Jun 24, 2022 2:36 PM IST
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