Is Delhivery delivering or dressing up?

Delhivery's stock surged nearly 10 per cent after announcing its Q4 FY25 results, marking its first annual profit since listing. A similar reaction followed its acquisition of Ecom Express, with markets cheering the seemingly opportunistic deal at a bargain price. But scratch beneath the surface, and the narrative becomes less straightforward.

Is the company delivering on structural strength, or are these just accounting-led wins and short-term signals?

The profitability illusion

First annual PAT—but what lies beneath?

Delhivery reported a PAT of Rs 162 crore for FY25, its first full-year profit. However, this was aided by a Rs 230 crore reduction in depreciation expenses due to a change in accounting method from Written Down Value (WDV) to Straight Line Method (SLM).

Why did the company initially adopt WDV? In the early capex-heavy years, Delhivery was unsure about asset life and usage intensity, prompting it to accelerate depreciation as a conservative approach. However, management now says its automation assets have lasted well and are likely to be useful for much longer, prompting the shift to SLM—in line with global peers.

While the change may be justified, it also shows how accounting choices can significantly influence reported numbers—both positively and negatively. Importantly, Delhivery clarified that the change will have a positive impact on FY25 and FY26 numbers, but will turn mildly negative from FY27 onwards. This is because WDV leads to high initial costs but minimal expenses in subsequent years, whereas SLM spreads the expense evenly over the asset's useful life.

Excluding this Rs 230 crore depreciation benefit and Rs 440 crore of other income, Delhivery would have reported a big loss in FY25.

Segment-wise pressure

What's more worrying is that service-level EBITDA margins declined in its key Express Parcel segment, which accounts for 60 per cent of its revenue. Margins here fell from 18.4 per cent in FY24 to 16.2 per cent in FY25, indicating pricing pressure or rising costs in its most mature business line.

Ecom Express acquisition: Strategic or speculative?

Buying customers, not operations

Delhivery acquired Ecom Express for Rs 1,407 crore. While this may appear a good deal given Ecom's previous valuation of Rs 7,000 crore, the reality is more nuanced.

• Delhivery expects to retain only 30 per cent of Ecom's customers.
  
• There is 100 per cent customer overlap, meaning no meaningful network integration.
  
• Most of Ecom's physical assets will not be absorbed.

This is not a classic merger. Delhivery has essentially bought customers, not infrastructure, technology, or talent.

Could it have waited?

If Ecom Express was in financial distress and Delhivery's network is truly superior, why not let customers migrate organically? Instead, Delhivery paid Rs 1,400 crore upfront for just 30 per cent of Ecom's customer base.

The math doesn't add up

Thirty per cent of Ecom's revenue is about Rs 800 crore—less than 10 per cent of Delhivery's current revenue. Delhivery likely had enough spare capacity to absorb this business. Considering Ecom had PPE worth Rs 450 crore and net working capital close to zero, Delhivery could have achieved the same revenue scale organically, possibly with much less capex over time.

If the acquisition had added 30-40 per cent to Delhivery's revenue, then paying a premium would have been more justifiable.

Cash flow: Still burning

Positive CFO—but not impressive

Delhivery's reported cash flow from operations is positive, but this includes a favourable accounting treatment: rental costs under lease agreements are classified under financing outflows. Adjusted for this, cash generation hasn't meaningfully improved year on year.

Free cash flow continues to be negative

Despite the PAT, the company still burned around Rs 250 crore, broadly similar to last year. This suggests that structural cash profitability remains elusive.

Capex optics

Management expects capex intensity to fall, but this is largely because the acquisition of Ecom Express includes usable fixed assets, reducing the need for future capital expenditure.

In essence, an organic buildout would have spread this expense over multiple years. The acquisition simply accelerates cash outflow and improves metrics optically.

Revenue growth: Losing steam

Delhivery's revenue from services grew just 9.7 per cent in FY25, down from 12.7 per cent the previous year. Growth in the Express Parcel segment—its largest contributor—was a modest 5 per cent, driven more by yield improvements than volume.

The company argues that:

• Competitors are incurring losses.
  
• Capital availability is limited.
  
• Consolidation is inevitable.

While all valid, such arguments assume that competition won't return. In a country like India, capital is never permanently scarce. And if the market opportunity is indeed attractive, new players or deep-pocketed incumbents (like Amazon or Flipkart) may well ramp up third-party logistics offerings.

Even Meesho, a major client, has moved logistics in-house—a strategic risk Delhivery cannot ignore.

Conclusion: What's really being delivered?

On the surface, Delhivery looks stronger than ever—turning profitable, completing a major acquisition, and guiding lower capex. But a closer look shows:

• Profit is aided by accounting shifts, not operational strength.
  
• Acquisition may be overpriced, with unclear synergy benefits.
  
• Cash burn remains, and core margins are under pressure.
  
• Revenue growth is softening, and competition risks remain.

Valuation: Priced for perfection?

Many brokerage reports assume a sharp improvement in margins over the next 2-3 years. Yet, even under those assumptions, most analysts value the stock at around 30x FY27 or FY28 earnings with very dismal ROEs of less than 10 per cent.

For a company with modest return ratios, unproven cash generation, and multiple structural challenges, such a high valuation seems premature.

Paying 30 times for earnings 2-3 years out—with high execution risk and limited earnings visibility—may not be prudent.

The big question remains: Is Delhivery delivering long-term value, or merely managing investor perception?

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Also read: Delhivery got Ecom Express for a song. Will it pay off?

This article was originally published on May 24, 2025.