Delhivery’s Mesh Network The Best Logistics Ecosystem: Kotak Institutional Equities

According to a report by Kotak Institutional Equities, Delhivery Ltd. “the best available” in a logistics market as dynamic and vast as India. The logistics company’s mesh network is beginning to benefit as its express parcel business achieves a 30% return on investment. As there are fewer touchpoints in the network and speed increases, inventory turnover at gateways for Delhivery has increased 10-fold, compared to 2-fold for competitors using the traditional hub-and-spoke model with fixed routes, it said.

The mesh network uses an algorithm that optimizes the most cost-effective route in real time, taking into account external factors such as road closures and weather conditions. “Ecosystem (self-logistics peers, meesho) advances to compete with Delhivery are experimental at best,” Kotak said.

Kotak is maintaining a “buy” rating on the company and expects the upside to kick in once other companies have “a broad realization” to “use Delhivery’s network strengths rather than replicate them”.

Companies like Amazon Inc. that want to compete with Delhivery on logistics costs will find it difficult to do so as it is decoupled from their core business, the brokerage said.

By automating decision-making, the company has increased direct connections to 70%. In addition, the company owns a 100% wallet interest in select part-truck load accounts.

The Tauru Gateway Center, Delhivery’s largest and most automated facility, serves 126 routes, compared to 50 a few years ago. Also, Tauru clears inventory 10 times a day – 14 times in peak season – compared to just once at its competitors.

Jefferies expects current prices to reflect less than 10% of its express parcel growth over the next three to five years, compared to over 30% historically. The broker also maintains a “buy” rating with a target price of Rs.570.

Integration issues as well as a slowdown in its e-commerce customers will be the main risks for Delhivery in the next nine to 12 months, Jefferies said.

Of the 21 analysts covering the stock, 14 recommend buy, five recommend hold and two say sell, with a potential upside of 16.3%.\

Delhivery shares are down 0.28% as of 3:10pm on Tuesday, compared to a 0.03% gain for the benchmark Nifty.

Related Articles

Back to top button

Subscribe To Our Newsletter

Don't miss new updates on your email