Delhivery shares made their stock market debut in May this year with marginal gains and in the little over a month post listing, shares have remained in the same region. Initiating the coverage of the stock, ICICI Securities and Morgan Stanley see a bright future but little to no upside as valuations remain high. While Morgan Stanley has given the stock an equal-weight rating, ICICI Securities has a ‘Hold’ rating on the stock. “Delhivery’s B2C-heavy business model has a potential profit pool of Rs 63 billion in India in our view (by FY26E). Our base case assumes Delhivery to capture ~25% of the same,” ICICI Securities said. On Monday the stock was trading at Rs 503 per share, up 1%.

“Delhivery’s scale, sound unit economics in express parcel and strong B/S provide competitive advantages in the industry and position it well to drive market share gains, improve margins and deliver superior return ratios,” said Morgan Stanley in a note. Similarly, ICICI Securities was also seen praising the company for its close to 90% of incremental 3PL (non-captive) e-commerce volumes over FY19- 22. “Delhivery has been gaining share through a mix of aggressive pricing and reliable expanding service,” they said. “We expect a similar trajectory to continue,” they added.

Analysts at Morgan Stanley estimate Delhivery already makes mid-teens segment level margins, before corporate overhead costs, in the express parcel business. “We expect Delhivery to achieve a strong revenue CAGR of 29% over F22-26, helped by improving eCommerce penetration and the shift from an unorganized to organized market,” they added. Currently, the company covers 18,074 PIN codes in India out of a total of 19,300 pin codes. 

ICICI Securities sees a potential profit pool of Rs 63 billion by FY26 for Delhivery. “How much will D capture over the next 3-5 years? If it captures 60% of the profit pool, we see the potential of Rs 1,139 billion market cap and a target price of Rs 1,416/share (Rs 1,170/share discounted for two years),” they said. In the case of capturing 40% profit pool, analysts see a potential target of Rs 944/share (Rs 780/share discounted for two years). “ If it captures ~25% of the profit pool, the target price amounts to Rs 484/share (30x FY26E and then discounted by two years) – our base case,” ICICI Securities said. The set base case target price is below the current market price.

Delhivery’s asset-light model has also caught Morgan Stanley’s eye, where analysts believe this could drive strong return ratios. “This (asset-light mode) keeps the business model asset-light, with the potential to drive asset turnover (ex-cash and cash equivalents) to ~2-2.5x over the coming years,” they said. Morgan Stanley said that Delhivery’s valuations are at a premium but justified given its superior growth profile. “Given a superior growth outlook beyond the near term (expect a slow 1QFY23) and better potential for ROIC expansion (vs many global peers) due to an asset-light model, we expect the stock to continue to trade at a premium,” they added. 

Risk rewards for Delhivery are seen to be balanced. Morgan Stanley has a target price of Rs 540 per share pinned on the stock. This implies a 7% upside from today’s levels.