Release Date: August 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Delhivery Ltd (BOM:543529, Financial) reported a 13% YoY growth in top-line revenue.
- EBITDA for the quarter was at 4.5%, with adjusted EBITDA at 1.7%, showing improvement.
- Part truckload business grew 25% YoY, driven by volume increases and yield improvements.
- Supply chain services saw a 26% YoY growth due to a strong quarter for air conditioning customers.
- The company expanded its customer base from 33,000 to nearly 35,000 customers this quarter.
Negative Points
- Express parcel volume growth was modest at 0.6% YoY.
- Supply chain services EBITDA margins decreased to 4.4% from 6% last quarter due to increased trucking and manpower costs.
- Employee benefit expenses showed a significant drop due to a one-time ESOP charge reversal, which may not be sustainable.
- The company faced challenges with the volatility of the express volume shipments market.
- There is ongoing pressure from competitors in the quick commerce space, which could impact future growth.
Q & A Highlights
Q: Amit, I wanted to understand any specific reason for change of D&A methodology from WDV to straight line?
A: There are a number of reasons why we chose to move to the straight-line method from the WDV method. Number one is to be in line with our industry comparables. When we looked at most of our competitors, they are on the straight-line method. Number two, when we adopted the WDV method many years ago, Delhivery was entering into a CapEx cycle. We were not 100% sure of how the asset quality would turn out over its life. Given we have operated our first generation of startups, those assets have lasted well over 9 years, and the higher quality footprint that we are now buying is expected to last much longer. We have not made any change to the useful life or the residual value of any asset type in our books.
Q: Is it fair to see that the worst is over and we should see normalization of volumes going ahead and perhaps a move back to a strong YoY growth in terms of shipments?
A: It's always a difficult question given how volatile this market is. We had indicated that we expected to see growth in this quarter, and we have delivered that despite the quarter being fairly volatile for the industry at large. The next quarter is also going to contain the peak period, and indications so far are that the peak period is likely to be a period of fairly decent growth for the industry. So I do think that our volumes leading into this quarter and beyond should be strong.
Q: Is Delhivery doing something to piggyback on the last mile logistics on the quick commerce perspective?
A: We've launched a new product. We've run the mother warehouses in the past for quick commerce firms, but the intention is also to launch a network of shared docks for warehousing, which will be available to e-commerce companies to use on a multi-tenant basis and then to provide rapid local delivery based on that fulfillment architecture. However, the consumer need for quick commerce, especially on the grocery side, is fairly established, but on the e-commerce side, it is relatively narrow in terms of its category and geographical penetration.
Q: Could you elaborate on how broad-based the growth was across different categories within the e-commerce vertical?
A: We've seen growth across all categories and client segments. In fact, we've also seen growth in the marketplace segments, but the growth across the non-marketplace segments is fairly secular. Vertical-wise, there's not much of a split because we've seen growth across all categories, both from direct to consumer and from the SME business. In terms of consumer-to-consumer shipping, it continues to see steady growth quarter on quarter and is a bigger driver of our brand perception, yield, and profits.
Q: Any sense if you could give us on how our market share has trended this quarter or last quarter within the 3PL segment?
A: The big structural change in the market over the last several quarters has been Meesho internalizing a certain percentage of logistics themselves. This has led to a bigger rearrangement of the overall market. Across the third-party logistics companies, there hasn't been any significant movement of market share, so our position as the largest 3PL continues.
Q: Can you talk a bit about the contract with the large customer mentioned in the last earnings call? Were there any price cuts involved?
A: I can't get into specifics about the contract, but suffice to say, you've seen our yield and margins have improved between quarter four and quarter one. It's not a reductive contract as far as Delhivery is concerned. We link pricing to the volume provided by the customer and protect against adverse mix. This is reflected in our unit economics.
Q: On the supply chain services business, where are we in the journey? What kind of growth can we see here?
A: We have seen solid growth due to new starts from traditional B2B industries and seasonally high quarters for consumer durables. Our pipeline is extremely robust, both from the B2B world and integrated fulfillment for e-commerce. We provide a comprehensive set of services that encompass warehousing, transportation, and information systems crucial to supply chain decisions.
Q: On part truckload business, you've been constructive on the formalization opportunity. Can you run through your thesis here again?
A: The industry is highly fragmented in India, unlike other markets where it is highly consolidated. Part truckload is a network business of consolidation and deconsolidation, which lends itself to large economies of scale. We believe the market will formalize in India, leading to efficiency and reduced costs. Despite a seasonally weak quarter, we've had solid growth, reflecting the quality of our service and our ability to generate demand.
Q: Should we expect further scale benefits in freight costs as you ramp up the PTL business?
A: Yes, absolutely. Our PTL network is designed to handle significantly more tonnage than we currently handle. As volumes go up, network utilization will rise, leading to cost efficiencies. This has a positive network effect on the express business as well, enabling us to derive competitive advantages.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
