Delhivery IPO opens tomorrow! Should you invest?

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Delhivery Ltd, India’s largest and fastest-growing fully integrated Logistics service player, is launching its IPO tomorrow.

Should you invest? Let’s find out!!

What does the company do ?

Delhivery provides a full range of Logistics services, including delivery of express parcel and heavy goods, warehousing, etc. It also offers services like e-commerce return services, payment collection and processing, installation & assembly services, and fraud detection.

Details:

  1. Dates: 11th May to 13th May
  2. Price band: ₹462 — ₹487 per equity share
  3. Lot size: 30 shares
  4. Minimum Investment: Rs. 14,610 (lower band)

Why IPO?

The company is raising Rs. 5,235 crore out of which Rs. 1,235 crores is Offer for Sale (where selling shareholders will get the entire money) and the rest Rs. 4,000 crores is a fresh issue, which will mainly be used for:

  1. Organic growth — improving delivery network, hiring more delivery executives, etc.
  2. Acquisitions and strategic initiatives
  3. General corporate purposes

Positives:

  1. Strong Network — Delhivery provides services to more than 88% of 19,300 PIN codes in India.
  2. It is the largest and fastest-growing fully integrated Logistics services player in India by revenue as of FY21.
  3. Rapid growth, scale across business lines leading to 3x increase in revenue over the last 3–4 years.

Negatives:

  1. It is a loss making company. The losses have halved in the last few years but might continue in future too as the company indicated in its IPO documents.
  2. Its COO, CSO and CTO are exiting part of their stakes in the company via the IPO. While this is not uncommon, it is not a good sign when management use IPO to cash out.
    For example, there was a 6 month lock-in period on Facebook employees after the IPO i.e. they could not sell shares during this period.

Conclusion:

Delhivery has shown excellent revenue growth over the last few years and serves a customer base of more than 21,000 due to its extensive reach in the country. However, similar to other recent Tech IPOs, Delhivery is a loss making company and has negative cash flows.

Whether it can turn profitable as its scale increases is still a question. Before investing in the company, investors should ask themselves:

How is Delhivery different from other recent IPOs of loss-making companies and if they are willing to bet their money on the company?