Just to follow up on that capacity management comment with e-commerce. So does that mean that you have better predictability into loads that you're going to see, much better than what you would have seen before? And that informs what you said about the PTL business?
It does not improve forecasting. It improves our ability to deal with volatility in forecasts. So just to be clear, it does not in any way enable us to forecast what our volumes will look like. Long ago, we gave up the ghost of trying to forecast any better. In any case, forecast accuracy in all industries is terrible. Logistics is really no different. The volatility at a city level is higher than the volatility at a district level is sort of higher than the volatility at a state level is higher than the volatility at a national level. So forecast accuracy obviously is not something that improves with this system. What improves is the ability of the systems in real time, which is the hard part to understand where our capacities are and to divert loads away or to block loads from coming in at bad times.
Also, we saw pretty robust volumes, which was, I believe, much better than your expectation as well. So was it also related to some sort of increase because of the GST rate cut where we saw some kind of volume getting shifted from 2Q to 3Q? And now the run rate would kind of stabilize at around 17% to 18%.
So, was there some extra tailwind because of the GST action by the government? Probably yes. But having said that, I think we'll continue to stick to our guidance wherein in a longer run, you can expect a ballpark 20% growth to play out. Now, for a few quarters, it might go down to 17%, 18%, 19%. For a few quarters, you'll see 21%, 22%, 23%. Last quarter, it was lower because there was a GST impact. This quarter, probably we have covered up for that. The revenue growth is 25%. So again, it's not going to be linear, but it's ballpark going to average out probably at this level in a longer term.
If I just look at the realization and the EBITDA per shipment for express parcel business, we see that with the Ecom Express consolidation, the realization and the cost has also come off. So I just wanted to check, in terms of the yield, as in the realization and the cost per shipment, is the 3Q number the new normal or is there a very large seasonality at play? The second is, you did mention a couple of times about the extra cost in the entire network buildup, which impacted PTL margins. Is it possible to quantify? Was that a 40-50 basis point or was that 100 basis point plus kind of impact? And the third is the corporate overheads. While broadly you had answered, but just a specific, if I look at the technology line in the corporate overheads, the earlier run rate used to be 43-45 crores on a quarterly basis. That has become 59-60 for the last two quarters. Is this the new normal or is this largely driven by the consolidation?
On yield, just very quickly, there is no new normal or old normal. The yield in any given quarter is dependent on the mix of volumes that we carry, which is dependent on the client mix, which is dependent on the weights of packages that we are hauling, the distances that we are hauling them, whether they are COD or prepaid consignments, what their return rate is and what category they belong to. Now, in the Diwali peak quarter, actually over the last two quarters, obviously since our acquisition of Ecom Express, our relative share of small parcels as opposed to heavy parcels has gone up, which is why optically it looks like the yield has come down. So in some senses, the normality that we look for is in the margin and not the yield. In terms of the extra cost, whether it's sort of leading to 50 basis point or 100 basis point increases, etc, that's almost a philosophical question because at the end of the day, we're sort of allocating costs to some extent between the parcel and the PTL businesses. Could we break it down? Yes, of course. But it's not a very important activity.
Any thoughts on entering the cold chain market?
The short answer is no. I think if you look at everything that we do right now, this is sort of what we are capable of doing. Cold chain is a step perhaps too far for us, and the second problem, of course, in cold chain is my understanding could be dated, but from what I remember, the storage market in cold chain is significantly larger than the transportation market. It's not a market where people are looking for an optimized solution. So there's very real, there's very, very limited value that we can add to that industry right now. So no immediate thoughts of entering the cold chain at all.
So given we are now delivering in margins, right now would be a good time to kind of start thinking about what kind of an ROIC profile do we envisage for ourselves at a steady state? Any thoughts about that? You've spoken about 15 to 20% volume growth for Express parcel. Now, does that basically assume that insourcing remains at current levels or do you think it can go up again? Also, what is now the outlook on the overall integration costs? Also, I saw some of the assets that were acquired from Ecom Express, which would help in lowering capex outflow. So why are we in the letter guiding that it could go up a little bit from here. And finally, any concrete plans on acquiring XpressBees?
I don't know. Let's leave that one aside for the moment. Some of the assets acquired from Ecom Express would help in lowering capex outflow. Just to be very clear, as I'd spoken about the Express capex, we do not anticipate it is going to be significant at all. The Ecom Express sorters will get deployed across our network. In fact, even for PTL, we don't really anticipate a very large amount of facility capex. We have not raised capex guidance as a % of revenue. We continue to believe that capex will get down to the levels that we'd spoken about. We're not saying that we're going to go from 5% of revenue to 6% of revenue next year. That's not going to happen. All that we're saying is that the decline that you might expect to see may be sort of a little slower than you might expect otherwise, largely because we might have to build out some vehicular capex a little earlier than we would have done otherwise in anticipation of higher volumes. And that will largely be linked to LNG trucks or tractor trains. Capex as a % of revenue is not going to go up. Does the 15 to 20% volume growth call out for Express parcel insourcing stabilizing at current levels? Yes. If insourcing goes up, you know, as you've seen insourcing went down in the last two quarters. Our view is that even if people continue to insource more and some of the clients cannot insource anymore, we'd still be able to grow at 15 to 20%. Worst case, hopefully we continue to grow at this 15, 17%, which is a lower end of the scale. If people make good decisions on insourcing and outsource to the largest and highest quality and cheapest logistics company in India, our growth should be 20% or higher. To your question on the outlook on integration costs - we expect them to be significantly lower than the 300 crores we'd originally forecast. I think we had 90 crores in integration costs last quarter. We are at 35 in this quarter. And I think the guidance that Vivek has put out for the next quarter, maybe about 25 to 30 crores of residual costs. So net net looks like it'll end up at that sort of 150, 160 kind of range.
Sahil and team, congrats on a great set of numbers. I have three questions. The first question is on your margins for Express parcel. Clearly, it's already at 18%. Specifically from an express point of view, any color you could go in terms of how high this margin could go from a steady state point of view. The second question is on the pricing power in the Express industry. Where are we from a pricing point of view? And should we continue to see a yield increase in the market going ahead? And the outlook for 2026 - an e-commerce entity mentioned that their outsourcing mix is changing. How does that add into the industry outlook for 3PL and your market share? And the last question is, how long should we see investments into new services like rapid commerce? And any number you could give in terms of the kind of investments you guys are looking to make out here?
In terms of margins for the Express business, I think we're at about 18.1% for Q3. Now, this has come without actually any increases in any significant or meaningful increases in yield. So a lot of this has just come from as volumes have gone up, higher utilization of the network. And of course, is a lot of cost discipline from our operations teams. The network has stably operated up to 22-23% margins as well in the past. Beyond that, we can expand margins, but that usually comes at the cost of some service quality in some locations. On pricing power, our competitors do not make money at this price. We will retain yields where they are. One of the areas we're working on is dynamic pricing or yield indexed pricing. On outlook for 2026, Delhivery's cost structure is not achievable by standalone parcel networks. As you've seen in the past, volumes from large e-commerce marketplaces when outsourced to third party players who are parcel only players actually don't improve their profitability meaningfully at all. So as long as cost pressures continue, I'm fairly confident that we will continue to gain share. On rapid commerce - investments are neither very large nor will they continue for a very long period of time. It's a business that accretes money. Delhivery Direct annual investments will be in the range of 60, 70 crores a year. So net net in terms of new businesses, I think it's safe to assume somewhere in our sort of 60 to 80 crore kind of range that we will invest next fiscal.
This is on express margins where you did mention a 24-25% was the peak margin in the past. But this was before we saw acquisition of Ecom Express. Now, even the volumes are incrementally increasing. So should we see the crossing of that peak at some point and room to increase beyond 24-25% as well?
See, as long as we can continue to drive up utilization, what you're saying is, of course, accurate. And when I said that 24-25% is where I have seen the network stably perform. Just to be clear, in 15 years, I've seen the network also perform at 30% plus EBITDA margins at various points. But those have usually come at the cost of some instability in service level somewhere. Could the network operate stably at sort of margins above that range? Yes, it could actually. Can the network perform at 22%, 23%, 24% margins? Absolutely. We don't intend to drop the price. Utilization should go up. Dynamic pricing may bring our yields down optically, but our profitability will remain intact.
My first question is on basically some of the sustainability of numbers delivered this quarter. One of the largest customers did allude that they had some issues with their own captive logistics arm and they expect recovery there. So do you see some of the retracing of the outperformance we saw this quarter? My second question is on the Ecom integration side. We did highlight 300 crore of potential cost on that side. Looks like now we are going to wind up at roughly half of that number. If you can also highlight where all were you positively surprised in terms of seeing the lower integration cost? The third question is on supply chain services. Now, this business, we have seen you onboarding clients. Some of them are marquee clients as well. But if you look at growth for this business, it's mostly flat. So do we finally see that the bottoming out has happened and we have a sustainable path to growth in this business?
I have said this many, many, many times over the years. Our margins are sustainable. They do not depend on variations in volume. We have maintained that express margins will remain in the 16-18% range. Discounting led growth in logistics or low cost growth in logistics is suicidal. Individual companies may change their outsourcing strategies in any given quarter. We've had captives declaring publicly that they are profitable only to post 2,000 crore losses when they file their results. And so the question is merely how long will people continue to sustain losses in the logistics entities? On Ecom Express integration - I'd have to say when you estimated 300 crores and are likely to end up at 150, you've been positively surprised all along the way. Fortunately, we have been able to shut down facilities earlier than originally thought. We have been able to also because we've sustained volumes, be able to integrate some facilities into our network, more quickly than we'd originally anticipated. I think we learned from our Spoton integration, which wasn't something that went to plan. On SCS - while we have been onboarding clients, growth has been flat. In our case, the clear steer to the team was that earnings over growth. And as you can see, we've gone from 2.1% margin to 13% in this quarter. There are some industries that we've learned that we shouldn't be participants in. Quick Commerce obviously being one of them. As you heard from Vani earlier, we have a couple of big mandates coming up. So, yes, I do think this is perhaps sort of the low end of supply chain services from a growth standpoint.
You said in the letter that you're currently in a high growth operating environment and you've kind of raised guidance on Capex in the near term. So my question is, is a comment on Capex also towards mid-mile infrastructure, specifically in e-commerce? And my second question is related to the PTL business where there's a comment inside which says you're integrating capacity management with key clients and there are other comments on capability improvements there. Should we expect meaningful wallet share gains with existing customers here as well? And in general, how would you split your revenue growth in PTL between new and existing customers?
Just before I answer both questions, that integration of capacity management actually was on the e-commerce side, not so much on the PTL side, because e-commerce is where you have significantly higher volatility in daily demand. We haven't raised our guidance on Capex in the sense that we expect to spend more as a % of revenue than we have in the past. We continue to expect that Capex will decline down to the sort of 4% to 4.3%, 4.4% of revenue over the not so medium term. Perhaps maybe even seven, eight quarters out, ten quarters out, we should be starting to hit those kinds of ranges. All we're saying is that there may be certain Capex investments that depending on volume growth, where we had anticipated that we might do them, for example, in Q2 of FY27, we might end up doing some in Q1. There will be obviously some sorters which will need to be added. Those, fortunately, were part of the acquisition of Ecom Express. In the mid-mile facilities, e-commerce growth doesn't really compute in terms of tonnage handled. So really, the mid-mile Capex gets determined by PTL as opposed to anything to do with e-commerce. On PTL capability - the PTL business has benefited hugely from the capacity management being integrated with e-commerce customers. When you optimize loads away from heavily utilized locations, PTL service levels go up as a consequence and become more reliable. On new client growth versus existing client growth - my sense is share of wallet gain plus organic client growth would have contributed a little over half of the total growth that we've seen. And the rest of it would have come from new client acquisition. But do anticipate, we anticipate the new client acquisition actually is going to accelerate in this quarter and beyond because our sales teams that we have been building for the last four or five months are now on the ground, fully trained, and we are now in about 60 odd locations compared to maybe six big locations that we were in two quarters ago.
The first is on express parcel. Would it be possible to segregate your volume growth into organic, inorganic and within organic, how much is because of market growth and how much is because of market share gain? My second question is on the bridge for PTL margins from 11% to 16-18% range. I know you have been talking about network utilization and incremental gross margins of 30%, 40%. But if you look at incremental gross margins have now been coming off from very, very high levels in FY24 to FY25 and FY25 to nine months of FY26. So just trying to list down the levers that will take you there with the network reaching closer towards optimal utilization. And the last question is at what Adjusted EBITDA margins you turn into free cash flow from operations at the consolidated company level in the medium term?
In terms of parcel growth, segregating between organic and inorganic, etc. To be perfectly honest, this is something we stopped bothering about in Q3. It's safe enough to assume that at this point in time, all of that growth in some senses is organic to Delhivery. The significant fact is that our volumes are up 43% a year. Best estimates are that e-commerce volume growth, GMV growth obviously may have been slightly higher if Flipkart sold more mobile phones. But other than that, broadly speaking, volume growth would have been in that 15-18% kind of range. And so when we've grown volumes 43%, 15-18% has come from organic growth in the market. The rest of it has obviously come from share gain. In terms of the bridge of PTL margins from 11% to 16% will continue to go up as utilization of the network goes up. Service centers sort of will fill up, trucks will fill up increasingly and margins will continue to go up. The second piece, is that we do continue to reprice certain accounts. PTL margin could actually have been slightly higher in this quarter, if it had been timed to perfection, which it wasn't. In terms of Adjusted EBITDA and when we turn FCF positive, I think, Vivek, do you want to come in?
At what Adjusted EBITDA margins you turn into free cash flow from operations at the consolidated company level in the medium term?
Gaurav, at about 6% we will be free cash flow breakeven. The math is simple. The CapEx will be in the 5% zip code area. So maybe 4.5% is what we have said in the steady state. Our working capital is already down to 15 days. So that would roughly mean that about 1% of working capital increase for the 15 to 20% kind of revenue growth rate. So that 5 plus 1 is broadly the 6% and at 6% Adjusted EBITDA, we will be free cash flow breakeven. That's the pre-tax free cash flow is what I'm referring to.
My first question would be on the PTL part. Just wanted to get a sense that while I do appreciate that you're adding a lot of sales team to drive volume growth, I just wanted to get a sense if you are adding any ancillary services in the PTL network, which can further improve the network utilization and employment? Basically, in CY26, are you looking to add more services to the existing network? And the second question would be on the supply chain piece. Now, historically, we have observed that the supply chain segment has a cap on the margins. And typically, because of the nature of contracts, you are not able to go beyond that threshold. So is there any number like what you mentioned on the transportation business of 16-18% service EBITDA? Is there such a number for supply chain business as well?
Well, I think you have a definitional problem. There's a reason we don't call our business contract logistics and we call it supply chain services because they're fundamentally different. We are not a manpower outsourcing vendor where a client comes to us and says, here's a piece of land that we have a warehouse on. We'll put our supervisor here and our warehouse management system and our racks. You provide us the manpower who does the picking and packing operation and we'll pay you 4% for that. Delhivery does not provide that service in any part to any client. We only take on mandates where it is a fundamental supply chain redesign. We have accounts which, for example, deliver 30% plus EBITDA as well. Obviously, our dog accounts were things like Quick Commerce where we lost money rather than making any. We don't participate in those kinds of RFQs any longer and that's sort of what we've been shedding. So is there a cap? No, I don't think so. Will margins continue to improve? We're already at 13%. We are nowhere near the full potential margins of this business. On PTL ancillary services - the first of all, just the pure express PTL business. There's no customer who says, yes, I'd like slower freight. So there's a general move towards express. There are really, strictly speaking, only two very large high-quality PTL players in India, which are Safexpress and Delhivery. So in some senses, we don't really need to offer ancillary services to continue to grow or to improve network utilization. Maybe Varun is the right person to come in and sort of briefly talk about this.
Continued - On adding services like hub-to-hub, air PTL, non-express PTL to the existing network?
So first of all, the additional services could be, as Sahil said, it could be hub-to-hub. It could actually be, air PTL as well. There is something which goes by air PTL, which do we have capability? Yes, to start immediately. But will we be starting? Yes, sometime in the near future. Hub-to-hub, again, we know the industry, we know the customers. Can we start? We can start almost immediately. But again, there is so much to do with the current setup, with the current set of people in the express PTL industry where we are seeing a lot of traction going to every customer we approach that we will take this up, but at the right time. So in the near future, yes, but probably not. It's not tomorrow morning.
If you look at the last three, four quarters, the PTL margin has been in the 10% to 11% range, even despite the increase in the volumes. So when we were doing around 450KT, the margins had reached around 11%, and even at 500KT, we are at around that number. So just going by the trend, is it like a hurdle to generate incremental margins now, or would it be increasingly difficult to generate more margins now?
Yeah, that's a good question, Alok. So a quick answer is no, it will not be hard to generate incremental margins. We look at the EBITDA margins of clients at an account level, and then sort of take appropriate either pricing actions or decide what to do from a contracting standpoint. Because a larger proportion of our clients increasingly are at gross margins, which will eventually lead to a much higher than 11% service EBITDA margin, I'm pretty confident that overall EBITDA margins will continue to rise. One of the reasons why margins have been choppy in this sort of last year Q4 to this year Q3 kind of period is because the express network suddenly sort of exploded with Ecom Express. So what's happened is that express capacities have increased in the last two quarters, and as a consequence of that, and also heavies typically increase in Q3. PTL margins normatively actually would have been a little higher than the 11% that you're seeing. Of course, there are still some accounts where we need to redo pricing. And the other is obviously there continue to still be some underutilized lanes that we have across the country. So I'll give you just one example because of the way our routing works. One example is that loads from Kanpur going back into North India, typically those trucks tend to be emptier than trucks going the other way.
My first question was on corporate overheads, wherein if we look at corporate overheads as a % of revenues, they are pretty sticky at around 9%. So with increasing volumes, we are also seeing corporate overheads, especially on the wages side, increasing. So how should we think about it going forward? My second question is that one of your customers who kind of held the conference call yesterday spoke about increasing capacity and better utilizing the capacity that they have expanded in the last quarter going forward. So in that scenario, how are the conversations that you've been having with them? What is really the roadmap? How should we think about that customer scaling up or down in the next year? And my last question is, anything that you want to be commenting on the health of your competitors? Is there something that looks a little kind of scary?
To be perfectly honest, it's come down from 11.4% in Q1 FY24 to 9.1% in Q3FY26, which is a fairly significant reduction. I don't think business tends to behave in a way where every single quarter you see a unidirectional movement of anything. Broadly speaking, corporate overheads have come down from 11.5%. They were actually 12% or so in FY 23. We are sitting here in FY26 and we're at 9%, which is a % of revenue, in reduction terms, 25% reduction as a % of revenue over a three-year period. And we expect that to continue. We have said we expect this to settle in the 6, 6.5%, maybe up to in the sort of more short term, 6-7% kind of range. So I think let's not give it an adjective as sticky just yet. Now, coming to our customers expanding capacity, putting a couple of people on a bike and having a distribution center does not make a logistics company. Buying a sorter does not make a logistics company. There is a non-trivial difficulty to building, setting up, and maintaining a large-scale logistics company as is evident. It's taken us 15 years. The only world in which Delhivery loses is if somehow tomorrow all of Indian e-commerce becomes low-quality e-commerce where nobody cares about delivery times. We are not dependent on any single customer. We do not have a 60%, 70%, 80% client concentration with one or two customers. On health of competitors - I will sort of make a generic statement which I've made in the past. Express only models and models which have high client concentration and models which are not built the way ours are, which have the wrong network structure, will never achieve network efficiencies, will never have operating leverage and will never be able to generate incremental margin no matter how much revenue they grow. So I guess I would not, like, let me put it this way. If I was running a business which had no fundamental underlying network advantages, would I be nervous if I was running those kinds of businesses? 100%.
On the corporate overheads tech costs - is this the new normal or is this largely driven by the consolidation?
Yeah, there is a, given the sharp increase in the network volumes, we have added server capacity. So that's playing a role. But the point to note is that from second quarter to third quarter, despite the 20% increase in volumes, the cost has actually not gone up. The rest of the cost has moved up because we have actually meaningfully stepped up our investments related to AI in our network. We are actually, in a very interesting way, deploying agentic AI across different components of our network. But that does come at some sort of an increase in our tech cost. Both of these factors have played a role.
What is required for the margins in the express parcel business to go towards 20% and beyond pricing? What other levers are there to flex? Is there an opportunity for pricing more specific routes?
It's a good question. So Aditya, let me try and stack up a couple of them in terms of how we're thinking about this. One, obviously, will come from just higher volumes and higher scale. Our DCs theoretically have a capacity to go a little beyond that. They can probably get to about 1,100 or so. We used to be in sort of the 550-600 kind of range. Now we're at about 800. The second is there are places where we do need to consolidate infrastructure. For example, we don't run an efficient operation in Pune. We need to reorganize Delhi NCR where we need to get out of the city limits essentially to avoid the no-entry problem. The other interesting one is actually reducing claim rates even more. Our claim rates are whatever, in the range of maybe 120, 130 basis points. I do think there's probably 30, 40 basis points that we can eke out of claims as well. There are these maybe three, four different steps that inch the margin up from wherever with 18.2, 18.3% that we're at towards the 20%. The other is when you look at the heavy market, while we have a large share from the large organized marketplaces in some senses, I still feel there's a pretty large market out there that is shipping heavy in various sort of unstructured ways and that's a market that I think we need to grow our share in. I do think we can grow the % of our business from D2C heavies and so on. I'm not so sure on pricing that we will take any sort of steps in the immediate near term. On pricing for specific routes - that is what I was alluding to when I was talking about dynamic pricing, which is one way of doing it, which is utilization indexed pricing, but you can also do time indexed pricing and so on. You can do destination indexed pricing. There's a whole bunch of weight indexed pricing that you can do, and we are starting to develop those systems.
On ROIC profile at steady state.
Sure, Sahil. Abhishek, the short answer, we think our business can generate 25 to 30% kind of ROICs. First, one important clarification. When I talk about ROICs, I talk about ROICs on our tangible assets. This does not include cash or ROU assets. The 25 to 30% is on our tangible assets. The drivers of that are both the expansion of our profitability, as well as improvement of our asset turns and the tightening of our working capital. We have always maintained that our business can generate about 16 to 18% kind of service EBITDA margin over the next three years. Alongside that, our corporate costs are expected to also come down to about 7% kind of levels. So that gives us about 10 to 11% types of overall Adjusted EBITDA margins. As our capex intensity in the business is coming down and our business scale is increasing, our asset turns are also improving. We think we can generate about 3x asset turns in the steady state. This coupled with further tightening of our working capital, it's already down to 15 days, will likely give us about 33% of revenue as our gross block and about 6-7% as our working capital. So about 40% of revenue as capital employed in our business. That with a 10 to 11% type of Adjusted EBITDA margin gives us about 25 to 30% kind of ROIC.
On international business, how will the economics and operations work here and how should we think about the scalability and profitability in this business?
This is profitable from day one. We've already been carrying packages in December. All of the packages that we've carried are profitable. So this, as I'd mentioned earlier, there's no capital earmarked towards investing in this business. It's an add on sort of to what we were already doing in terms of express air parcel. So in express air parcel, we have a partnership with FedEx and with Aramex. In the economy product, we have stitched together a network which includes carriers. So for example, we fly Air India. And then we also, and then we inject into the US and then hand off to partners in the US. It's a sort of, it's a light technology integration as opposed to sort of a formal partnership, like what we have with FedEx or UPS. And the rates that we have for each of these legs are added to Delhivery's cost and Delhivery's margin expectations, and then presented to clients. And it's obviously, it's still a compelling proposition. The reason it's a compelling proposition, obviously one is the reach of Delhivery's network in India. So let's say you're an SME who wants to export out of Moradabad, Delhivery has the best service from Moradabad to Delhi. So it will be profitable from day one. It will not require any further capital investments. It's a process of just stitching together a bunch of networks around the world.