‍Bernstein Downgrades Delhivery, Cites Threat from Meesho's Logistics‍

Bernstein's decision to downgrade Delhivery acknowledges the perceived risk posed by Meesho's internal logistics infrastructure.

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The brokerage firm has lowered its rating on Delhivery, describing the company as 'volatile' and likening it to an 'unstable ship'.

According to a Bernstein report, Delhivery's shipment volumes are expected to suffer due to Meesho's transition to an in-house system named Valmo, as Meesho holds around 50 percent of the market share in third-party logistics.

Additionally, the brokerage firm downgraded Delhivery, citing concerns over management turnover and operational challenges alongside Meesho's move. Bernstein characterized Delhivery as 'volatile' and likened it to an 'unstable ship' due to these factors.

Bernstein analysts highlighted Delhivery's volatility, noting challenges in its PTL and Ecom businesses, compounded by Meesho's insourcing and leadership departures. This assessment underscores the perceived instability within the company.

The downgrade follows Delhivery's return to losses in Q4, having unexpectedly turned a profit in the previous quarter. Despite a 12 percent increase in revenue from operations compared to the same period last year, Delhivery reported a net loss of Rs 68.5 crore in Q4.

As per the brokerage firm, Valmo presently manages 20 percent of Meesho's overall volumes, with intentions to escalate this figure to 40 percent within the coming months. Valmo has extended its coverage to 5,000 pin codes and asserts that its parcel costs are approximately 5 percent less than those of third-party logistics (3PLs). Additionally, it anticipates achieving further savings of 5-7 percent over the next 12-18 months.

Meesho has clarified that Valmo functions not as a standalone logistics entity but rather as a system aimed at optimizing the delivery network, welcoming participation from multiple stakeholders.

Bernstein analysts noted that Meesho operates on a low-AOV platform, necessitating minimized logistics expenses achievable through scaling its parcel volumes within its network. Comparing with global platforms like Shopee, MELI, and Coupang, Meesho is likely to expand its in-house logistics to manage the majority of its volumes.

The analysts expressed skepticism regarding Valmo's purported cost advantages over 3PLs, suggesting that its current focus on urban areas might be influencing this perception. They anticipate clearer insights into cost efficiencies as Valmo extends its reach to Tier 2+ towns. In the interim, they anticipate Delhivery's e-commerce volume growth to be impacted and subject to volatility.

Source: Moneycontrol