Delhivery is targeting a $5 billion valuation when it makes its public market debut at a price band of Rs 462-487 per share. The price and size of the initial public offering were readjusted as macroeconomic and political sentiment turned choppy globally earlier this year, even as uncertainty remains.
Barua told ETtech that he took his experienced board’s suggestion about the IPO and decided to go ahead as “a big, mature and well-understood business.” Delhivery should be able to surface its problem despite less-than-ideal conditions, he said.
“(Delhivery) has reached a stage in its evolution that gives us confidence… We have a mature business model. And we are on track to achieve $1 billion in revenue,” said Barua. He said that while Delhivery relies on technology, logistics is a business well understood by public market investors.
According to the company, it posted operating income of Rs 5,170 crore, or close to $700 million, in the nine months of FY22 ending December 2021.
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Barua, who co-founded Delhi more than a decade ago, along with Mohit Tandon, Bhavesh Manglani, Suraj Saharan and Kapil Bharati, said optimizing theoretical short-term valuation gains is pointless. Valuation would have played a bigger role, he said, if the IPO had a larger OFS portion, which would make a difference in investor exits.
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“If you look at big IPOs like DMart, it’s a stock that has never traded below its IPO price…. that is the ambition we have. We want to price it in a way that our investors make a substantial amount of money and where, ultimately, there is very clear visibility of how the shares are made up,” said Barua, who owns 2.08% of the company and does not plan to sell none of them. his shares in the initial public offering.
Delhivery was valued at $3bn following a $277m funding round from Fidelity, GIC and others last May. It raised another $125 million from former Tiger Global partner Lee Fixel’s new Addition venture fund in September, but a secondary sale of shares by Fosun valued it at $4 billion, ETtech reported Oct. 4.
New-age firms like Zomato, Nykaa, Policybazaar and Paytm headed straight to local bourses last year, but are now trading well below their highs since listing. Paytm has seen its share price drop by more than 70% from the issue price.
Barua said that one of Delhivery’s greatest strengths is that it is not a discretionary business and that investors understand that such companies offer better solutions to solve logistics problems. They feel like we’re not trying to change user behavior, she added.
He told ET that the company has also significantly improved its profitability in recent quarters. “Growth and profitability are not conflicting goals for Delhivery at the moment. And the question now is to improve margins as operating leverage has started to kick in over the last three quarters,” he said. Delhivery had a negative Ebitda (earnings before interest, taxes, depreciation and amortization) margin of 0.57% in the first nine months of FY22 compared to -11% in FY2019, he added.
Will examine mergers and acquisitions in core business only
Sandeep Barasia, CEO and chief commercial officer of Delhivery, said the Gurgaon-based startup is ramping up its expansion in India and will seek mergers and acquisitions in core operating areas that can add value to the company.
“Either they will be businesses that have helped us scale one of our segments faster or they will be capabilities that we don’t have internally… What we won’t do is take minority stakes, act as a financial investor, or buy businesses that are not core to us,” Barasia told ET.
Of the Rs 5,235 crore public offering, Rs 4,000 crore will be made through a primary sale of shares, while the rest will be made through a Rs 1,235 crore OFS. In an OFS, existing investors sell some or all of their shares to new investors and the money does not go to the company.
On the Delhivery OFS, investors such as Fosun will sell shares worth Rs 200 crore, while SoftBank and Carlyle will sell stakes worth Rs 365 crore and Rs 454 crore respectively. Times Internet, which is part of the Times Group (BCCL), is also selling Rs 165 crore worth of shares in OFS.
Delhivery plans to use Rs 2,000 crore of the IPO for organic expansion and another Rs 1,000 crore for inorganic growth through acquisitions and other strategic initiatives. The rest of the profits will be used for general corporate purposes, the company said.
“We have a very large addressable (domestic) market, as I have mentioned several times. We will continue to double the addressable market,” Barasia said.
He said that Delhivery has continued to diversify from being an e-commerce focused company. In fiscal 2019, 85% of its business came from express parcels, which is mostly e-commerce, he said. “If you look at the first three months from FY22, that’s 57%. 43% of the business is non-urgent packages”.
Although Delhivery continues to focus on its business-to-consumer (B2C) delivery business, Barua said the company is unlikely to participate in the express delivery space (10-20 minutes) as the business model is still evolving. .
“If ever 10-minute delivery is something consumers are willing to spend on low-cost items, Delhivery will be as well positioned to do it as we are today. But as of now it’s just not an area of focus for us,” she added.