In today’s Finshots, we discuss the story behind logistics startup Delhivery as they start working on a massive ₹7,460 crores IPO.


The Story

Back when Zomato was still a restaurant-listing platform, a couple of young guys had an idea.

“Our question to them (Zomato’s founders) was look you guys are doing a fantastic business online, and presenting them to users. The next step is obviously to fulfill the order. Why has no one built a delivery network for restaurants?”

And Delhivery was born. In 2011, it became the “delivery boy” for restaurants. But soon, the company spotted an even bigger opportunity— India’s burgeoning e-commerce industry.

At the time, e-commerce companies like Flipkart and Snapdeal fulfilled orders using their own modest delivery arms or availed services of old school courier companies — who were more attuned to delivering documents or shipping bulk orders. They were old and slow and did not live up to the Indian consumer’s high expectations. And these expectations required a different kind of focus.

You needed a network of warehouses, last-mile distribution and a robust tech platform to tie everything together. You also needed organised backend processes that could handle payments, particularly cash on delivery — which was a big thing back in the early 2010s. Delhivery went about building all this and some more.

And its dream of being the ‘third-party, last-mile logistics delivery firm’ (3PL) for e-commerce has been shaping up rather well since then.

According to a RedSeer report, ~20% of all e-commerce delivery volumes in India were found to be fulfilled via Delhivery. And nearly 60% of Delhivery’s revenues now come from the e-commerce sector (it was 89% of revenues in 2019). If you zoom in, this primarily includes the ‘express delivery segment’ — which refers to your everyday online orders that weigh less than 40 kgs. The express market in India was estimated to be ~$2.3 billion in size as of 2020 and is expected to reach ~$10–12 billion by 2026.

That’s something that Delhivery will hope to capitalise on. However, it also means the fate of Delhivery is in some ways intertwined with the fate of e-commerce in India.

And this becomes all too apparent when you realise Delhivery’s revenue could be attributed to only a handful of clients. Sure, the company may boast over 21,000 customers, but over 41% of its revenues come from just 5 entities!

While Delhivery hasn’t specified its top clients, it would be safe to assume e-commerce giants Amazon and Flipkart feature on that list. And while that may look like a prestigious clientele it also presents another kind of risk. For instance, Amazon is building out its own logistics network to rival 3PL players in the US. So it’s possible that they may follow a similar path in India. Flipkart meanwhile has made strategic investments in rival firm Shadowfax and partnered with Adani Logistics to improve its supply chain infrastructure.

And if this trend manifests across the industry, it could spell trouble for Delhivery. As the company notes, “there is no assurance that we will successfully retain all of our existing key customers in the future.” And that’s a big risk.

So, if Delhivery can’t bet on e-commerce giants to propel it ahead, what can it bet on?

Well, the rise of direct-to-consumer (D2C) companies. These are companies  that prefer to sell their wares directly on their own website or social media channels. They usually focus on just one niche — like fashion or health food. And these people would rather focus on offering a superior customer experience as opposed to figuring out the costs and the burden associated with maintaining a massive logistical arm.

Reports indicate that India’s D2C market, which is currently worth $44.6 billion, could be worth $100 billion by 2025. And by 2026, D2C shipments could zoom by 6x. That’s what Delhivery is already betting on.

So even if the big guns build out their own infrastructure, Delhivery, could perhaps bet on the rise of D2C brands to plug the demand gap. And there you have it…a preview of Delhivery’s business. With the company potentially seeking a valuation over $5 billion, maybe we’ll unpack the numbers a bit more before its eventual IPO.

Until then…

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