Why Delhivery Share Price is Falling

Have you ever looked forward to a holiday and ended up being disappointed?

Imagine you took a long-scheduled leave from work, got all your schedules in line, used your savings to book a beach view room, got all your tickets booked, and packed up your excitement for an amazing weekend.

But the moment you reached the hotel, it starts raining and the whole weekend is washed off. That's just sad, right?

But do you know what's more heart-breaking? Losing money in an investment that you thought would grow exponentially!

We're not talking about semiconductors or electric vehicles (EV).

The sector in focus is none other than the new age tech sector. Zomato, Paytm, Nykaa, and the newly listed companies/startups, take any of these stocks and they have all fallen badly in 2022.

These companies received huge investor participation in their IPOs as they promised growth in the long run.

Earlier this week, we wrote to you about why Nykaa is falling.

The stock we want to focus on today is Delhivery.

Yesterday, shares of Delhivery slumped over 15% to touch a new low of Rs 471.3. Today, Delhivery shares crashed yet again by 19%!

The share price has now fallen over 32% in the past two days.

So, what caused the sudden fall? Let's find out...

Disappointing business update

On 19 October 2022, Delhivery gave a quarterly business update. The update provides a summary of its operating performance and key business and industry trends for the quarter that ended 30 September 2022.

The update failed to woo the investors it appears.

The company mentioned that in the first two months of the quarter, the overall industry outlook was dull. However, towards the end of the quarter business sector picked up because of the festive season.

Although, what hurt investors was the company's expectation of seeing a moderate growth rate through the rest of the financial year. Historically, when a company posts low growth forecasts, the company's share price takes a hit.

It holds particularly true for new-age companies. Their share price takes a major hit when low growth is expected. For example, in February 2022 Meta's share price (erstwhile Facebook) fell 26% in just one day!

On 3 February 2022, Meta announced its revenues will be lower than expected, and that was it! The share price fell like never before. Due to a dismal forecast, it wiped around US$ 200 bn of Meta's market capitalisation.

Just a single bad forecast and the company saw its worst single-day loss since it was listed on Wall Street. According to Reuters, it was the biggest fall in market value for a US company.

Coming back to Delhivery, sales volumes in the supply chain services (SCS) and truckload (TL) businesses declined in the current quarter compared to the previous quarter owing to the rainy season.

Rising inflation has indirectly affected Delhivery's business. As per the industry reports, consumer discretionary spending remained muted due to continuing high levels of inflation.

Average user spending and total active shoppers remaining flat or fell lower during the on-going festive season. Hence, the overall demand for shipments was low.

Investment Takeaway

While investors responded negatively, there were certain good aspects to Delhivery's quarterly update.

The part truckload business, which has been under pressure in the first quarter due integration of Delhivery and SpotOn networks, saw a recovery. The company recorded a growth rate in freight tonnage handled on a sequential basis.

A majority of Delhivery and SpotOn's pre-integration customers have restarted shipping through the integrated network. They were also able to add 200+ customers in the current quarter.

Its cross-border business also showed steady growth on a YoY basis despite a global slowdown and a decline in yields for both air and ocean freight.

In spite of the challenging market conditions, its market position remains strong owing to its structural cost advantages, network size and investments in capacity.

However, the clouds of doubt still surround Delhivery as the company has zero promoter holding. The company may still continue to post losses, even if they are on a decreasing pace. It lacks some of the important qualities of a fundamentally strong stock.

About Delhivery

Delhivery is an Indian logistics and supply chain company based in Gurgaon. It was founded in 2011 by Sahil Barua, Mohit Tandon, Bhavesh Manglani, Suraj Saharan, and Kapil Bharati.

The company has over 85 fulfilment centres, 24 automated sort centres, 70 hubs, 7,500+ partner centres, and 3,000+ direct delivery centres as of 2021. About two-thirds of its revenue comes from providing third-party logistics and delivery services to e-commerce companies.

To know more about the company, check out its factsheet and quarterly results.

You can also compare Delhivery with its peers:

Delhivery vs Blue Dart

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...