Delhivery Q1 FY27 earnings call

Delhivery Limited reported a solid start to FY27 with Q1 revenues reaching nearly Rs. 3000 Cr, marking a 28% year-on-year growth. However, EBITDA grew by a modest 5% year-on-year to Rs. 156 Cr, indicating margin pressures. The quarter was characterized by record volumes despite a challenging external environment, including labor shortages, election-related disruptions, and inflationary pressures.

The express business delivered a record 322 million packages in Q1, achieving a robust 55% year-on-year growth. The PTL network also showed strong growth, handling 542,000 tonnes of freight, an 18% year-on-year increase. PTL yields improved significantly to nearly Rs. 12 for Q1FY27, contributing to over 20% year-on-year revenue growth in this segment, with management noting that most of this yield improvement was organic and sustainable.

The supply chain services business generated nearly Rs. 200 Cr in revenue for Q1. Profitability in this segment was temporarily impacted by the initiation of two new large contracts, one with an industrials player and another with a consumer durables player. These contracts are currently in a 'buildup phase' where initial costs are incurred before full revenue and margin potential are realized, with stabilization expected in Q2 and early Q3.

New initiatives, particularly Delhivery Direct, are growing faster than anticipated. The platform is currently at an Annualized Run Rate (ARR) of Rs. 150 Cr as of July, ahead of its original FY27 target of Rs. 250 Cr. Management expects to exceed the FY27 target. Contribution margins for these new initiatives have also expanded beyond initial expectations, leading to potentially lower anticipated investments for the year.

Q1 saw a 300 bps sequential decline in gross margins, primarily due to external factors. While fuel cost increases (contributing about 6 paisa to PTL yield improvement) have contractual pass-through mechanisms, minimum wage increases, which had a larger impact, lack such clauses, making their pass-through more challenging. Management anticipates the full benefit of fuel pass-through to be visible in Q2 and expects to pass on wage cost increases to customers over time^⏳.

Delhivery maintains a selective approach to Quick Commerce, focusing on supplying brands to mother warehouses or dark stores of large Quick Commerce players. The company explicitly avoids running dark stores or performing last-mile delivery for Quick Commerce, citing concerns about margin pressure, lack of differentiation, and the unsustainability of current cost structures in these areas.

Delhivery continues to invest in automation and engineering, deploying new industrial automation systems across transportation facilities and fulfillment centers. These investments are crucial for sustaining market share growth and mitigating challenges like labor availability. The company also launched 'Delhivery Maps' based on its proprietary GIS information, with plans to make it available to external customers.

The company noted chronic labor shortages across the industry. Delhivery's strategy for its field staff emphasizes providing stable employment and career progression, with 6-8% of field executives expected to reach supervisory roles within 1.5-2 years. This approach aims to foster a more stable and efficient workforce compared to the gig-economy model.