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Delhivery IPO off to a slow start, but may augur well for logistics start-up ecosystem

Mere three per cent of the issue subscribed on day one

ipo (File) Representational image | Shutterstock

The Rs 5,235 crore initial public offering (IPO) of logistics and supply chain solution start-up Delhivery started on a slow note with just three per cent of the issue subscribed in the first day. However, experts believe that this IPO is expected to augur well for the entire logistics and supply chain segment.

There are challenges for the logistics start-up segment in the country, caused by high fuel costs and price valuations. It needs to be seen how this IPO fares in the next two days. The company is selling its shares in the range of Rs 462-487 a piece.

Experts felt that it was an IPO juggernaut until reality started hitting the market. Recent IPOs such as Zomato or PayTm, or any of the newage IPOs, had to struggle in the market. “Delhivery is an essential service, but predominantly dependent on e-commerce. The good thing is that e-commerce is here to grow. However, when this business is built on cost arbitrage alone, margins will be under stress. Logistics, being one of the most important costs, will be under huge amounts of stress. At the end of the day, it is delivery and the customer does not bother how he gets it or how digitised the partner is. So, if the technology is not helping lower costs, it is hard for the company to make money. Unfortunately, the issue talks of negative cash flows let alone profits,” remarked Sathya Pramod, CEO, Kayess Square Consulting Private Limited.

Pramod observed that the path to positivity for this delivery start-up is also rough. “The fact that the grey market is not showing great signs, winter coming in terms of foreign investors and Tiger Global doing some crazy losses make the issue look tough. However, what is commendable is that the company has openly said everything, and is not making false promises. As a sector it is great, but growth will come with capital investments which would mean more dilution. Can the company hold up is the question. Peers such as Blue Dart and Gati have been there for long and have been profitable, and here we are valuing the company at more than all the other major players' combined valuation. The timing may not be right for this one.”

A few experts are of the opinion that it is commendable of Delhivery to be listing in the current times considering the overall global market scenario and lack of post-listing performance of some blockbuster IPOs. “It only demonstrates the true investor value the organisation has built, else no management would be willing to subject themselves to the high market scrutiny and risk a potential IPO. We saw in the last budget that even the government has recognised logistics as the backbone of commerce and the need to drive growth in this area. Automation is going to transform the industry for the better. Sahil Barua and team have built a solid foundation for the logistics industry in India and this IPO is going to boost the confidence of other growth stage firms. It is also a reminder for all companies to build with a strong focus on cash flows and have a solid foundation for building a successful business,” says Dhruvil Sanghvi, CEO, LogiNext.

It is known that Delhivery had delayed its plans for IPO for a few months owing to uncertainty in the market. However, pressing ahead with IPO will give a lot more confidence to other companies vying to enter the IPO arena. “A good part of Delhivery is its revenue earnings and the reach it has established in India. It has strong fundamentals as opposed to some of the earlier IPOs,” pointed out Subramanyam S., founder and CEO of HR company Ascent HR.

Experts observed that the IPO of Delhivery will boost the confidence of entire start-up ecosystem, particularly in domains other than popular ones like Fintech, EdTech and e-Sports. “Given the recent unsettling news of layoffs, it is important to rekindle the energies of the founders, investors and employees. This could revalidate the interest of everyone in the Indian start-up ecosystem and restart another spate of actions in the logistics domain,” said Aditya Narayan Mishra, director and CEO of CIEL HR Services.

A few other experts from logistics start-up segment feel that the impact of a start-up going into an IPO is surely one of the contributing factors to increase investor interest in a sector, but there are other factors as well. “Investors' interest in a specific start-up has many other factors, spanning from target market size and growth, differentiated offering and sustainability over time, promoters' background, business-model etc. Further, IPO is just one of the options of 'exits' for investments made in a start-up, and consequently the impact is so much more for a specific kind of investor that funds new businesses or start-ups on a clear transition path from private funding to an IPO,” observed Anjani Mandal, CEO, Fortigo Logistics.

Brand expert and owner of Harish Bijoor Consults Inc. Harish Bijoor said life is about logistics and the Delhivery IPO has come at the right moment. “The pandemic has told us clearly in number terms that both inbound and outbound logistics govern the world of commerce. The Delhivery IPO happens in these circumstances. The best circumstance for Delhivery possible.”

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