What would be the fleet utilization levels at the moment in 4Q?
Our utilization prior to Q3 was in the sort of 65% kind of range. Q4 on a similar comparable basis would have gone beyond 70%. But as we get better at engineering our truck routes and designing software that tells us what to load on the trucks, the definition of the capacity itself is changing. So fleet utilization has improved quite significantly between Q3 and Q4.
Your current assessment of what volume share would you be able to retain?
Our estimation when we did the calculation of our consideration was that we would retain about 30% of the volumes within the core Ecom Express network. It's been one and a half months really since we've announced. It's best to make more definitive statements once we have the CCI approval and things play out a little more. But let me put it this way - as of now, we are very happy.
As industry opportunity moves away from horizontal marketplace players - does Delhivery have potential to take price hikes and drive margins?
Competitive advantages have not been determined by this acquisition. Our competitive advantages have been built over 14 years. In terms of taking price hikes, there will be a time in this industry when pricing will begin to float up. As far as Delhivery is concerned, that will be the day that our productivity gains can no longer outpace inflation. As long as we continue to do that, the right answer for our customers is for us to bring down the input cost of logistics. So we're not at that point yet.
On PTL, given outperformance, what is the growth runway expected and beyond operating leverage and yield management, what other operating efficiencies drove this quarter's margins?
Our PTL business has obviously been a great story for the last two financial years, especially after the Spoton integration, we've outgrown the industry quite comprehensively. The market in India is heavily unorganized. Delhivery is effectively organizing this industry. As long as nearly 80% of this industry continues to remain unorganized, there's very, very large headroom for growth. As we get closer to about 175,000 to 200,000 tons of freight, we hit nearly full potential margins. Yield is one part of the story - yields have gone up to about Rs. 11.3 per kilo compared to Rs. 10.9 in Q4 of FY24. But operating leverage from increased tonnage and improvements in fleet utilization driven by automation and software loading of trucks have also been significant drivers.
Express Parcel margin profile is hovering around 16% versus 18% last year - is this the new normal until Ecom Express integration kicks in?
Even with pricing pressure, Delhivery's incremental margins tend to be in the 27% to 30% range. As our network continues to fill up with the volumes that we retain, we do anticipate that there will be some expansion in overall margins. Even if the gross margins remain broadly constant as volumes increase with the network, the service EBITDA margins will continue to rise. As volumes come in, once we finish with the integration, we do anticipate that normative margins will go up. Pricing pressure in this industry will significantly be reduced going forward.
How do you see 3PL industry structure evolving given Ecom Express acquisition and chatter that XpressBees is not in good shape - is it just Delhivery and ShadowFax and a few smaller players?
Delhivery has always been more than 100% of the profit pool of this industry. That position has only been strengthened. At the pricing that currently prevails, Delhivery is the only profitable player in this industry. There are still too many players in this market. How long can unprofitable players continue to survive is a question I am not best placed to answer. This deal signals that if you are a loss-making network in Express Parcel with no path to profitability, consolidation or exit is an inevitable outcome.
Any updates on the rapid commerce foray - how many dark stores, orders per dark store?
It's satisfactory in terms of what we had planned. We are in three cities as of this quarter and about 18 dark stores. The older dark stores are now clocking at about 350 to 400 orders per day, while the newer ones have a certain ramp up time. We're planning an overall number of 50 dark stores over the entire fiscal.
On orders per day - 700 to 800 orders per day is when this breaks even. How much time for older dark stores to reach that?
Our expectation is that it will take about four months to five months for an individual dark store to get to that point.
On the Rs. 300 crore integration costs - is this mostly payouts related to locations shut down or does it include operating losses?
It's a combination of two things, Vijit. One of them is going to be the lease liabilities, which contain lock-ins. The second is, as the core part of this network, which cannot be shut down, continues to survive and some volumes flow through. There will be some operating losses that we had factored in. We've been pretty conservative about the roll back of the Ecom Express network.
On the March-April-May volume uptick - what exactly is happening as most clients are already on Delhivery?
Clients are moving their volumes into Delhivery's network. Customers can just manifest whatever volumes they want to, into Delhivery in any case. Customers are obviously looking to balance out their volumes between Ecom Express and Delhivery. In some cases, they are shifting certain kinds of PIN codes into Delhivery preemptively. Most of them are moving volumes into Delhivery. And our overall share of the market is going up pretty rapidly.
How are you looking at the in-sourcing trend right now in Express Parcel - is the worst behind us?
We do anticipate that we will accrue share. That was the basis of the acquisition itself. As the capacity in this industry becomes normalized, the interesting thing with Delhivery is while we normalize capacity and reduce it in this industry, pricing of shipping will not go up. Given our inherent advantages in our cost structure, this will not happen. Self logistics businesses do not compare favorably with third-party logistics. I think the worst from a self logistics standpoint is behind us.
Given Rs. 170 crores of automation Capex inline with e-comm, how do you see Capex number for next couple of years?
Our long-term guidance for the Capex is in the range of 3.5% to 4%. Over the next two years to three years, the Capex on automation equipment should be minimal. When we look at e-comm's DRHP, they have capacity to do about 120 million shipment sorts per month, whereas the volume retention that we have factored in our valuation would basically mean that we are retaining roughly only about 15 million per month. So in a sense, about 35 million shipments per month additional parcel sorting capacity. Over two or three years, we should not require to buy parcel sortation systems.
On integration cost Rs. 300 crores - cash outgo only Rs. 1400 crores, rest passes through P&L? And outlook on PTL growth ahead given high base?
That Rs. 300 crores will pass through the P&L of Ecom Express, you're right. And in terms of the outlook for growth, our outlook for growth continues to remain positive in the PTL industry. We've added nearly Rs. 800 crores plus in revenues between FY23 and FY25. There is a strong trend of movement from unorganized PTL towards organized PTL. We have very large cost advantages. So I see no reason for us to have any change in our growth expectations of the PTL business.
On Express Parcel - what's your take on FY26? Do you think the industry can go back to growth?
I don't care where the industry goes. I care about where Delhivery's volumes go. Through the acquisition of Ecom Express, we will be able to grow faster. In a market growing 18-20%, Delhivery will get at least market growth, if not more. In the case where the market doesn't do very well, the parcel only network model built around either franchise models or built around highly specific parcel origins is a poor model. So in a world where parcel volumes remain sluggish, counterintuitively, perhaps Delhivery's competitive position is strengthened further.
On the sharp customer additions - is it largely the PTL SME push or also e-commerce business?
It's both, Dhruv. In the SME space, the gateway to Delhivery is effectively Delhivery One, which is where clients can access all of Delhivery services both Express Parcel as well as PTL. Some are also coming in through Delhivery Direct, which is our local service launched in Ahmedabad and Delhi. We also intend to go live in Bangalore and Bombay over the next 45 days.
On working capital and Capex - have we achieved working capital days target? Capex 3.5-4% over next two years or medium-term?
On Express Parcel and Part Truckload, we are fairly close to our target number of days. There is still room to reduce working capital days by two to three days for each of them. In Supply Chain Services business, we have significant room for improvement. On Capex, there is a fair bit of chance that in FY27, we will be able to start hitting our long-term Capex targets on the back of excess automation equipment that we will acquire in Ecom acquisition. So yeah, it's fairly possible that FY27 onwards, our Capex would be in that 4% range rather than 5% range.
On Express Parcel pricing - historically Delhivery has led any price action. Was it different this time?
Last year was the one year where we did not lead the pricing move in the market. We did see that competition in this industry, in order to wrest short-term market share, took certain pricing calls. Our anticipation was that this pricing was suicidal and was untenable because the pricing appeared to be at a negative gross margin. So we waited it out. Suicidal price, I think, in this industry, more or less at this point in time has ended because I assume most players have seen the consequences of that kind of pricing.
What is the percentage of your largest customer today? And on Express Parcel realization versus margin trending down - is it due to customer mix?
On realization vs margin - realizations have gone up, margins have trended down a little bit. It is entirely down to parcel mix - mix in terms of clients, weight and distances. As a lot of this pricing overhang in this market clears up, there's no reason for us to believe that we won't be able to get back to our 18% margin level. There's no structural change to the business. On largest customer - last year we disclosed that our largest customer was about 16% of our revenues; I don't think there is a material change to this number.
On the new services Rs. 6 crore loss - are these quick commerce related and how does this turn profitable?
Yes, it is linked to the quick commerce, rapid commerce business because a number of the dark stores as they were set up, there's about a one month to one and half month period where these are tooled up. The oldest cohort of dark stores starting to turn close to breakeven in Q2. Then sequentially, as other dark stores get there, this loss should come down. A part of this is also linked to the launch of our Delhivery Direct business in Ahmedabad. We've also launched Delhi and Bombay. Once we get to a couple of thousand orders a day in these cities that burn also starts dropping very significantly.
On Part Truckload segment - to improve margins from here, would yields play bigger role or improving cost structure?
Both things will happen going forward. There'll be improvements in yields as well as improvements in underlying productivity and operating leverage and scale. The yield story is not done fully yet. We've gone from about Rs. 10.8 to Rs. 11.3. Most of the new business is coming in at very healthy yields. Customers are willing to pay an extra Rs. 1 to Rs. 2 per kilogram for highly reliable express services. As volumes go up, margins have continued to go up. As our trailer form factors evolve going forward, we should see other additional benefits accruing to the PTL business.
On Express Parcel - what more does Delhivery need to do to increase share of pie with captives, and how should captives think about insourcing/outsourcing?
In our discussions with our key strategic customers, everyone is looking for an off-ramp from captive towards third-party logistics. There are areas where captive players have realized they are particularly uncompetitive. Rather than a wholesale shift from captives, this kind of piecemeal shift quarter-on-quarter for the next several quarters is how we will go about it. So what Delhivery will have to do is to build all these capabilities. We already have pretty solid capabilities on handling heavy, which is unique to us because of the PTL network. Financially, the captive model is more expensive and a franchise based captive model also delivers less reliable service than the Delhivery model.