Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Top line grew by 13% YoY, indicating strong revenue growth.
- EBITDA for the quarter was at 4.5%, showing profitability.
- 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.
- Customer base expanded from 33,000 to nearly 35,000, reflecting business growth.
Negative Points
- Express parcel volume growth was modest at 0.6% YoY.
- Supply chain services EBITDA margins dropped to 4.4% from 6% last quarter due to increased costs.
- Employee benefit expenses were impacted by ESOP reversals, indicating potential instability in workforce costs.
- Depreciation policy change from WDV to straight-line method may have long-term financial implications.
- Market share in the 3PL segment remained steady, indicating no significant gains despite growth efforts.
Q & A Highlights
Q: Amit, I wanted to understand any specific reason for the 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 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. The higher quality footprint that we are now buying and putting in our facilities 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. This reason, coupled with the fact that our maintenance cost for these assets is within what our AMC cost agreed with the vendors is for the useful life of assets, we do not see a reason for WDV being the right method.
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. I anticipate that our steady-state volumes will continue in line with what we forecasted, which is annual growth rates in the e-commerce market of between 15% and 20%.
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. The consumer need for quick commerce, especially on the grocery side, is fairly established. On the e-commerce side, we still view it as being relatively narrow in terms of its category penetration and its geographical penetration. We will provide dark stores and a delivery service out of those dark stores. However, I don't think 30-minute or 1-hour delivery timelines are going to massively disrupt the broader swath of e-commerce.
Q: How does the new model for quick commerce affect unit economics?
A: The unit economics of trying to deliver a kajal in 20 minutes by itself to a consumer in Bombay are never going to be very good. We have to distinguish between quick commerce and rapid commerce, which is something like maybe four-hour delivery or two-hour delivery in the metros. The unit economics for that, which allow a certain amount of consolidation and route optimization, are still positive. I don't believe that unit economics for sub-one hour or sub-30 minute delivery for low-value products with not significant value density and distance is higher than three or four kilometers in an urban environment like India are going to work out.
Q: Could you elaborate on how broad-based the growth was across different categories within the e-commerce vertical?
A: In terms of overall growth in volumes from the longer tail of e-commerce, we've seen growth across all categories and client segments. 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 that much of a split because we've seen growth across all categories, both from direct to consumer and from the absolute long tail or our SME business. In terms of consumer-to-consumer shipping, we have the delivery direct application and offline resellers, which are growing steadily and are solid drivers of profitability and revenue for us.
Q: Any sense of how our market share has trended 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: Could you provide more color on the heavy goods category within the e-commerce side?
A: Our yield in e-commerce parcels has gone up on a YoY basis by about 5.5%, primarily due to a higher mix of heavy goods. There are certain initiatives that we are undertaking, which could potentially further increase the mix of heavy goods in our business. This is one category which is very unique to Delhivery amongst the 3PLs that we service while our competitors are either not there or insignificant because of the LTL capability that we have.
Q: How do you see the competitive landscape in the D2C segment with traditional logistic players pricing aggressively?
A: The fact that somebody is offering a lower price, if it's not backed up by high quality, reliable service, the lower price is not enough. No customer is going to accept more delays or higher returns for a lower price. We index on the quality of our service and the reliability of our delivery. We have not faced any particular headwinds from traditional competitors in terms of pricing. We are confident that we are the lowest-cost operator in this space and have passed cost efficiencies on to our customers over time.
Q: Could you talk about the growth and customer addition in the supply chain services business?
A: The supply chain services business has seen solid growth due to new starts from traditional B2B industries and a seasonally high quarter for consumer durables. The 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 operations, and information systems crucial to supply chain decisions. Our ability to support multiple tenants in the same fulfillment centers and enable companies to variabilize their operating costs is a significant differentiator.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
