Why Delhivery’s taking the long road in the quick-commerce era

Also, India’s third-party logistics sector is facing some headwinds amid increasing competition from established players and as online marketplaces like Meesho opt for their own delivery fleets.

Delhivery is doubling down on improving its cost efficiencies and service quality in its core express parcel business, which accounted for 62% of its revenue in 2023-24. It is also exploring solutions like shared dark stores, or warehouses, for its e-commerce clients to improve capacity utilization and optimize its fulfilment or delivery processes. 

The Delhivery management expects revenue growth from its express parcel business to rebound to 15-20% in FY25, following a 12% growth in FY24, as it renegotiates key contracts. 

The rapid rise of the quick-commerce sector further complicates India’s logistics landscape. While some third-party logistics providers are scrambling to enter this high-pressure space, Delhivery is adopting a strategic course. Instead of competing, it is positioning itself to support quick-commerce companies by offering warehousing, distribution, and last-mile logistics solutions. This paves the way for Delhivery to leverage its strengths in established segments and achieve long-term growth without compromising on profitability. 

A bright spot for Delhivery is its part truckload business, which contributed 19% of its FY24 revenue. The business has rebounded nicely, with volumes up 67% in the first quarter of FY25 from two years earlier as Delhivery makes significant strides in business-to-business express logistics, capturing market share from unorganized players.

Also, by expanding its direct sales teams and strengthening its reach across Tier 1, 2, and 3 cities, Delhivery is well-positioned to capitalize on the growing demand for organized logistics solutions.

A key differentiator for Delhivery is its extensive network, spanning nearly 19,000 pin codes across India. This includes remote and underserved areas, offering an advantage rooted in the company’s strong e-commerce foundation. Most part truckload logistics companies cover only 4,000-5,000 pin codes.

Improving margins

Delhivery’s part truckload business turned profitable at the service Ebitda level in the fourth quarter of FY24. 

Part truckload margins are rising steadily, given that yields are on the rise while costs are sliding, moving up from 2.2% in the March quarter to 3.2% in the first quarter of FY25. Delhivery’s management is aiming for the part truckload business’s long-term margin to match its express parcel segment’s impressive margin of 18-20%. 

Delhivery’s overall margin also benefited from the rebound in express parcel margins to levels above 18%, dispelling concerns over the Meesho contract renegotiation. 

Delhivery’s shares have gained 14% so far in 2024, underperforming the benchmark Nifty 500’s 25% returns. “We think the current price factors in less than 20% express growth in the next 3-5 years versus the 30%+ levels seen in the past,” Jefferies India analysts said in a report dated 18 September. They also believe that growth prospects for Delhivery’s part truckload business are underestimated. 

To be sure, the combination of extensive reach, low costs, and service quality makes it tough to beat Delhivery in the express parcel and part truckload segments. While competitors are making their moves and change in market dynamics is undeniable, Delhivery seems more focused on playing its cards right, rather than reacting to short-term turbulence.

According to ICICI Securities, key risks for the Delhivery stock include pricing pressure in the express parcel or part truckload business, and medium-term growth visibility worsening due to global headwinds.