Indian logistics had a direct spend of $216 billion in the fiscal year 2020
Expected to reach $365 billion in the year 2026
Growth cagr expected at 9%
Factors that drive growth in this industry:
Organised players accounted for only ~3.5% of the logistics market for fiscal year 2020
The Indian logistics industry is characterised by high indirect spends on account of high inventory carrying costs, pilferage, damage and wastage. Indirect spends were estimated at US$174 billion in Fiscal 2020 and are expected to marginally decline to US$166 billion by Fiscal 2026.
Road segment is the largest mode of logistics in India.
The domestic rail transportation market stood at a size of ~US$21 billion in Fiscal 2020, which is expected to reach US$47 billion by Fiscal 2026 at a CAGR of 17%.
DOMESTIC AIR EXPRESS TRANSPORTATION: NICHE SEGMENT WITH LIMITED GROWTH
Waterways isn’t opted by the company
Warehousing:
Value objective: “To enable customers to operate flexible, reliable and resilient supply chains at the lowest costs.”
Active customer base of the company can be found across a diverse spectrum of :
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Disclosure: No positions
11 Likes Shauryayadav 2The PTL segment of Delhivery is new segment comparing all other segment but the problem lies in their operations they pay more to their vendors and they (Delhivery) recieve less from their client’s may be they are doing these to maintain their vendors. But how Long they can do this if they want to break even in PTL segment or want to turned themselves into profit they needs to on-board their own truck rather than outsourcing to vendor’s it will bring down their cost but one time investment will be large in purchasing their own trucks.
Source: My friend work in Delhivery for almost 2 year’s in PTL segment and he told me about this.
4 Likes sidkat2006 3They have a large share of express parcels mainly caterting to Ecommerce. Majority of the chunk comes from Ecommerce marketplaces.
The questions to ask are:
I read one interview for IPO where on being asked about situation of new age companies, they said that they are not new age tech companies but are very much brick & motar company…I am guessing what would they be saying if their IPO came before the new age tech meltdown?
2 Likes Shikhar_Gupta 5I was a former employee at Delhivery. Sharing a few points which might be of help:
Disclaimer: The idea to share this is to provide more info for better decision making but in way a recommendation to buy.
23 Likes Investor_No_1 6 Shikhar_Gupta:Since fixed costs are huge in logistics, their economics improve significantly with scale. This is a big differentiator from other ecomm companies which are burning money for growth and therefore their losses also increase
Is this not the narrative for every company that with scale the economics would increase significantly? Same is for other tech/non tech companies as well…infact, it may hold true for every listed as well as unlisted company…
2 Likes Contrabets 7If you just look at growth aspect the ecommerce logistics can grow upwards of 30% so this is some companies that can’t be ignored.
But in these uncertain times with all stocks looking for there correct price and a buisness that is actually is in very early stages getting an ipo is good but not for most.
The market will correct and value it itself so one of the stock to watch in these new age tech listing I personally have added in watchlist with nykaa and zomato.
All three have some problem may it be no proper buisness moat in case of delivery specially can they actually be unrivalled or not, nykaa crazy valuation and Zomato path to profitability.
Looking at there buisness other then scale and reach can they actually have any pricing power as most of there buisness is asset lite but working capital heavy that could be very painful specially if anything like capital stuck is there and depend on some clients that may be the biggest ecommerce is a good thing and also a bad thing.
Buisness is good but valuation multiple for such business according to me is unknown specially looking even they don’t know what will be there long term margins and how logistics work in India its very hard to even compare with foreign peers as logistic cost is India is actually one of the few countries where it is decreasing even in these low worker and high fuel scenarios.
Without any clear margins after the sector matures it’s very hard to even predict what will be the valuation that it can be cheap or very expensive also.
2 Likes Shikhar_Gupta 8Agree with the narrative point but in most of the ecomm companies the variable costs are more dominant than fixed costs (like discounting, etc.) whereas in logistics, fixed costs are more dominant (warehousing space, leased trucks, manpower, etc.) that is why the chances of them improving profitability with scale are much higher. Have experienced this first hand in Delhivery. Margins improve significantly during the ecommerce sales as most of the facilities/ trucks/ manpower run on near 100% utilisation and there’s a baseline shift every year with increasing volumes.
3 Likes Harsh04 9Had a cursoy look at RHP and found that its competitor blue dart is asset heavy and still makes a profit… while they claim to be asset light and still have a negetive ebitda
also huge employee costs of 20% ?
Delhivery granted a patent for its proprietary technology product, Addfix. This is an in-house developed location intelligence technology built over mountains of data collected by Delhivery in last 11 years. You know how the addresses in India are not very simple and a lot of people end up putting incomplete, wrong information in their addresses. This leads to wastage of resources in finding those addresses. Addfix helps the last mile courier agent in reaching the exact location even if the address in not accurate or incomplete. Selling this software licenses itself has a huge potential for revenue.
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5 Likes sougataG 12Google has developed something similar imho.
Address Maker is a free service that helps governments and NGOs easily create new addresses for under-addressed communities.
2 Likes rpattabi 13“Addfix” is indeed critical for Delhivery. But I don’t think this is anything special or unique.
All the ecommerce companies who don’t call you everytime for directions have developed some form of this technology. Amazon comes to mind.
2 Likes vikassethi 14We are importers of tennis and Badminton equipment in India. For domestic logistics we used FedEx from 2012 till 2021. For pin codes that FedEx didn’t cover, we used Professional Courier.
Then suddenly FedEx decided to stop it’s domestic operations in India and Delhivery took over their business. Dealing with Delhivery has been fantastic so far. Much superior to FedEx. They cover almost entire pin codes and we now don’t use Professional. So our entire business is with them.
Unlike FedEx where reaching out to “Point of Contact” was a terrifying process, in Delhivery we get instant response.
So with respect to B2C and B2B operations with them, we are extremely happy.
Just wanted to highlight a consumer’s point of view with Delhivery.
31 Likes sidkat2006 15Apart from non-Amazon, non-Flipkart volume(roughly 20% for delhivery) it depends a lot on other ecommerce players along with other D2C players. This volume is bound to drop as customer acquisitions slow down and also discounting at order level. Attaching public information available that will correlate with what I am saying. This is substantial volume that will be hit and growth will slowdown. Also, there have been 2 reports today both projecting growth nos on the assumption that e-commerce will grow at 35% pa.
Link attached for reference
1 Like naruto 1624% market share in e-commerce (Dec 2021)
141 Cr Cash PAT in FY2022 Q4
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Operating leverage - incremental EBITDA generated over the incremental revenue between Q1 and Q4 has come in at close to about 24.6% (from transcript)
Low cost - In the short term, Delhivery is aspiring to reduce overall logistics cost and pass on the benefits to the customers. This will create significant moat.
From transcript - the more money we save our customers, the more they have to invest in their businesses. … as Delhivery brings down the cost of logistics, several categories which were previously unviable in eCommerce suddenly start becoming viable. And so it is important that we continue to pass some of our efficiency gains back to customers. Now, the extent to which we will continue to pass these efficiency gains back to customers is a pricing decision that we take at an individual client and sometimes at an individual category or individual lane level, so it’s a little hard to predict.
Efficiency - yield per parcel is brought down from 92 ('19) to 72 ('22) in a time frame where fuel costs increased from 66 to 93
Inorganic - Delhivery has 6358 Cr cash available for inorganic opportunities. SpotOn is purchased at 1900 Cr. Company is eagerly looking for build vs buy options.
Capex - CapEx for financial '22 was at about Rs. 466 Crores. Our CapEx as a percentage of revenue has come down from 9% in financial '19 to 6.8% in financial '22, and our expectation in the medium term is that this will settle at about 5% and in the long term, at close to about three and a half to 4% of revenue.
The cash generating capability of the company should be in-line with their Capex forecast. Inorganic opportunities should take company to next level with respect to revenue and cash generated.
Disclosure: No holdings. Watching.
Links -
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6 Likes aditya14920251 18It’s a loss making company that has consistently lowered it losses across the last 4 years and has broken even in FY22 with Operating leverage waiting to kick in in coming years.
The first part though optically correct is probably not a complete summation of the company today. Q4 results posted above has the data.
sanjay192 19If good companies with competitive advantage are available in good valuation …Then why someone should think about loss making companies…If it has some competitive advantage …Then it will continue to make profit consistently…Therefore nothing wrong if u miss initial years of that company…
My investing criteria is very simple…
High entry barrier,
Competitive advantage,
No loss making,
Profit making,
No capital intensive business,
No PSU,
No debt,
High ability to give back cash to the shareholders,
Should be available in good valuation,
Products and services offered by the company are so good that any idiot can run the company…
I am new and do consider some of the factors. May I know why no PSU?
sanjay192 21I can talk whole day regarding not to invest in PSUs. But lets talk in brief.You have to consider the basic purpose for which PSUs are created.Post independence,there was capital crunch in country and FDIs are not possible.So govt has to set up Steel Plants,Airline,Coal Mining Companies etc. in tax payers money.That is perfectly fine.But you should ask questions that when after so many years…if money is available in the country to build these things ,then why govt is holding these things in the name of PSUs. Consider an example -Lets say after Independence ,govt put 500 crores and set up 5 steel plants through Steel Authority of India (SAIL).Lets say after 20 years investment came to India and Jindal,Bhusan all set up steel plants.Then what would you think the value of the govt steel plants would be if any body else setup steel plants in the country.Definitely the value of the govt steel plants will go down.Then what was the perfect time to monetize these PSU steel plants.Govt would have get best price for the plants when the Jindal,Bhusan etc. were thinking of setting of their plants.Govt could have gone to them and said that …don’t setup the plant and buy my plant.If they already set up their plants, then the selling price of the PSU plants will decrease.Then why govt did not do it.Simply because vote bank politics.This is all about the asset management in PSU.
Now consider the efficiency part in PSUs.The PSU’s always recruit good talents with written exams like reasoning,aptitude,engineering,General knowledge etc…etc…but why they produce mediocre results on profit/loss.Because its the process which delivers result not individuals .HDFC bank can deliver good result with average people because of its good processes where as SBI and PSU banks will deliver mediocre results as they do not have efficient processes.
Salary of an employee in Private bank is a function of demand and supply of talents,skills,profit of the bank etc. where as a PSU Bank employee’s salary is a function of inflation,Fixed annual increment etc.
If there are vacancies in HDFC bank and PSU bank …then which would you select first …think … HDFC bank is more profitable than almost all PSU banks…So by logic every one should be applying HDFC bank …Now ask your near and dears… about their view regarding this vacancy…you will be surprised by the answer.
Again if job security is the parameter for creating excellent result for the company…then do you really think that "Lockheed martin’s " job is more secure than “Hindustan aeronautics limited”.Then why is this huge difference between their results in terms of innovation.
Apart from this what u think… to whom LIC would listen …its retail shareholders or Govt.LIC will serve govt’s interest or its retail shareholder’s.During LIC IPO no body asked tough questions to LIC management about the value behind the buying of IDBI bank.
Govt do not sell PSU when its demand is very high…it sells PSU when it need money…means distress selling…no pricing power …by the time govt sell PSUs…the PSU’s already lost their competitive advantage.What you think …would any body buy …BPCL,HPCL 's petrol pump network once Relience setup 50000 new petrol pumps. At present BPCL,HPCL etc. are taking losses …say Rs.10-15 per ltr at present…What do u think, who will bear these losses…its the shareholders who will take the losses…so read a lot from books on investment…and stay away from business channels…They will tell you to buy LIC…sorry for any grammatical mistake
