This Logistics Stock Is Trading Near 52 Week Low, Buy For 32% Returns, Says ICICI Securities

Published: Monday, November 21, 2022, 13:19 [IST]

Leading brokerage firm ICICI Securities is positive on Delivery Limited. The brokerage believes Delhivery's current valuations provide a great opportunity to BUY this high-quality stock. The brokerage has placed a buy call on Delivery Stock with a target price of Rs 460 per share. According to the given target price, the stock is likely to gain up to 32% from its current market price. The company opened its IPO in 2022 and was listed on 24 May on the stock exchange. It is a mid-cap logistics company having a market cap of Rs 25,353.95 crore.

Stock Outlook & Returns On Investments

The stock since its date of listing has given 35.17% negative returns. In a week, it has given 5.95% negative returns, 9.71% in 1 month and 38.87% in 3 months, respectively.

The Delhivery stock is currently trading at Rs 348.20 per share, 0.71% down as compared to its previous close of Rs 250.70 per share. Today, it opened at Rs 372 per share on NSE. The stock recorded its 52 week high on 21 July 2022 at Rs 708 and 52 week low on 21 November 2022 at Rs 329.90 per share. The stock is currently trading near its 52-week low.

Five reasons to BUY Delhivery

1) Lowest cost structure compared to peers across first mile, mid mile and last mile logistics in express parcel business is a competitive edge in a cost-sensitive market, 2) technology and trust moat should strengthen its dominant share in niche segments such as secured delivery, 3) hands on management ensures agile decision making and timely intervention during exception handling, 4) strong balance sheet should help sustain investments through periods of tight liquidity and 5) uncharacteristically high (compared to peers) brand recall among end-users could make it a key beneficiary of open ended B2B ecommerce marketplaces (Link to our thematic note on B2B e-commerce) and ONDC roll out.

Context on what went wrong

Delhivery's share price has corrected by ~50% from peak levels of Jul'22, given the concerns around sustainability of revenue growth and path to profitability. Revenue growth concerns are centered around slowing of growth in the express parcel segment (e-commerce) and sharp decline in volumes in the PTL segment post the integration of 'Spoton' which was acquired in FY22. The path to profitability was also in question as the company reverted to negative adjusted EBITDA in Q1/Q2FY23 post two quarters of positive EBITDA in Q3/Q4FY22.

Valuation

ICICI Securities has said, "We value Delhivery using time discounted forward EV/EBITDA multiples. We discount EV calculated at 20xFY26E EV/EBITDA by 1.5 years (at 20% discount rate) to arrive at our price target of Rs460. We believe risk-reward skew for the stock is attractive at current market price (5.3:1). We envisage an upside scenario where the stock re-rates to Rs620 if revenue growth recovery in express parcel and PTL segments are higher than estimates. We assume a downside case where the stock could de-rate to Rs300 if EBITDA margin profitability is pushed beyond Q4FY23 and medium-term revenue growth visibility worsens further due to global headwinds."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

Story first published: Monday, November 21, 2022, 13:19 [IST]

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