Single largest customer concentration - last year it was about 16% of revenues. My sense is this number would have crossed 20% this year. Till what level is it okay for this to go? Also on ROICs slide - can the 16% go beyond 20%?
On client concentration, if any single customer were to cross 35% of revenues I would worry - though I don't have a scientific basis for that number. At the moment, while it's higher than the 16% we were at last year, we are absolutely nowhere close to even the made-up 35% threshold. It's not particularly worrying for us. We look at it at the overall level.
Would you be able to quantify how big the TAMs would be in this segment?
No, I cannot quantify precisely - as with all things in India, nobody really knows what these TAMs actually are. But it's very, very large. Millions of commercial vehicles fly across all of these cities. Multiply LCVs in India by maybe 2000 rupees a day and that's going to end up being the TAM. Suffice to say, it's a very large single, if not low double-digit billion-dollar market.
First question - what kind of an impact we could expect from an increase in fuel prices, both on consumption as well as cost? On the ground, we are picking up in certain areas, Delhivery has increased pricing by rupees 1 to 2. Second question - media articles about Amazon opening up its 3PL to get new customers. What kind of impact can we expect from this, especially with smaller customers like D2C brands?
On fuel prices, in PTL, prices are indexed to diesel prices at the pumps - a natural pass-through process and industry standard. So with fuel price increases, diesel price link contracts will see price inflation passed to customers. In express, sensitivity to fuel price increases is not as high, but DPH (diesel price hike) clauses exist, evaluated customer-by-customer. Airlines introduced a surcharge on ATF cost, passed forward to customers. No broad pricing increase planned at the moment. In Q4, fuel price increases had begun to show up but were offset by cost improvements in other network areas - which is why Q4 margins went up over Q3, which is unusual. On impact on consumption, a more volatile, expensive environment is generally better for the market leader because relative cost advantages become larger - customers want to reduce shipping bills and tend to transition more volumes towards Delhivery. On Amazon's 3PL - this has been tried before. The relative scale of Amazon's in-house operations compared to any third-party client will be minuscule, creating service issues. At the last mile, first-party orders will always be prioritized over third-party orders. First-party logistics is more expensive than third-party logistics even after factoring in the margins we make. This is just an old product in a new wrapper.
Short follow-up - on AI, robotics, automation investments, what kind of impact on OpEx or CapEx should we expect?
Not significant enough to report anything unusual. On AI, focus has been on making technology teams more productive internally - features that used to take three to five sprint cycles now done in one or two. Strategically used in reducing documentation in PTL (manifesting consignments), communicating with end consignees, and claims handling - where accuracy and productivity have both improved and we've been able to reduce team sizes. No increase in technology team size or inference costs. On industrial automation and robotics, the key focus is AGVs within mega gateways - labor in India continues to tighten and automation is required for service reliability. We launched Delhivery Labs about a year back; gone from prototype to ready to scale AGV pilots in Bombay, expanding to other mega gateways this year. Neither AI nor robotics initiatives will materially alter CapEx trajectory - we're at 4.7% and will get to our 4% target.
First question on market share - broader market 1P vs 3P, and within 3P, where Delhivery stands. Second question on net working capital - really meaningful reduction over the past four years, what's been driving this and what's the impact on business?
On market share - post Ecom acquisition, markets are more settled with stable long-term competitive dynamics vs. short-term price gouging of prior two years. On 1P vs 3P, a large listed marketplace has spoken publicly on their earnings call about 1P share declining. Costs in 1P networks are higher than 3P when fully loaded. Regulatory changes - minimum wages going up, gig worker laws, labor shortages and productivity-adjusted labor costs inflating - these pressures should drive a gradual shift towards 3P over time. In 3P within large marketplace accounts, our share continues to be stable. Shadowfax's growth in Q4 is down to a single account where we have certain caps, as we actively manage client concentrations to maintain consistent service levels. In the long tail and D2C segment, our share is stable or has grown a little YoY. On net working capital - ambition was always free cash breakeven as soon as possible (original internal target was fiscal 27, now achieved). Drivers include: billing fast and accurately from moment of delivery, selective client onboarding (not participating in RFQs from clients with misaligned payment philosophies), more frequent billing arrangements with preferential pricing net-accretive to Delhivery. We've gone from 38 days three years ago to 11 days today.
Building on D2C long tail in Express - is the stable market share across direct efforts and aggregator business? Is there a path to take market share even higher? Also on working capital - how much of the benefit came from mix of prepaid orders going up and supply chain services client mix improvement? And is 11 days sustainable long-term?
On D2C long tail - yes, growth has been very high both from direct SME/D2C customers and via aggregators. Delhivery Direct application allows extremely small SMEs to ship directly. There is absolutely an opportunity to continue gaining market share in that segment. On NWC - 11 days is sustainable. NWC improvements come from systemic investments in billing, collections, and client relationships - not conjured from thin air. Three years ago it was 38 days. On SCS, the main call was to not participate in mother warehousing for quick commerce - that was the only big call. Renegotiated contracts with a couple of existing clients helped profitability. As SCS business matured, our own billing accuracy via systems has improved.
SCS pipeline - would growth continue to be service EBITDA margin accretive? And on new initiatives, you mentioned 130 to 160 crores of investment over next year - is this all OpEx and what's the burn rate in mind?
On SCS pipeline - yes, it will be margin accretive. There is an internal hurdle rate that every SCS project must pass. We don't pick up projects below that hurdle rate. We are now accurate in assessing the profitability of each SCS account. There may be short-term impact when starting a customer - for example, building 140,000 sqft for a customer needing 80,000 sqft in anticipation of another pipeline conversion. But individually every client will meet the hurdle rate. Our pricing accuracy has improved across consumer durables, auto, e-commerce and lifestyle sectors. On new initiatives investment, the investment guided at 130 to 160 crores for fiscal 27 covers Delhivery Direct including the intracity on-demand service. In fiscal 26, we invested about 76 crores, largely toward the on-demand intracity service. We anticipate north of a 200-crore run rate in external GMV from the intracity logistics business.
On the SCS pipeline and sectors - will the pipeline continue to be margin accretive?
We will continue to maintain a disciplined approach in client selection and manage our internal hurdles. The pipeline is broadly in line with our focus sectors and we expect to maintain that the pipeline and the sectors we look at are going to be margin accretive.
First on 1P to 3P shift - will Delhivery wait for it to play out or actively try to get more from captive players? Second - the market is more settled now. Do you feel that further consolidation in the industry is unlikely and it will be more organic going forward?
On 1P to 3P - Delhivery doesn't view relationships with customers as zero-sum games. There is no customer on whom we have significant dependence. Customers have their own reasons for persisting with first-party logistics. First-party logistics does tend to be more expensive than third-party logistics - over time, rational financial decision-making will lead people to move some volume towards 3P. Our job is merely to continue doing the best job we can, reflected in operating service levels and efficiencies. We don't do anything violent to change a customer's mind. For marketplace customers who shift to us from in-house logistics, we bring down their logistics costs and provide high-quality service. On consolidation - there are three listed players in the express logistics space: ourselves, Blue Dart, and Shadowfax. That market structure seems sensible and appropriate. I don't think Xpressbees has any structural advantages compared to the three listed players, and I don't see a reason for them to exist.
On ROICs - are all components beyond working capital aligned to sales? And does the 16% ROIC have a chance to go beyond 20%?
Tax receivables are linked to sales. Security deposits are indirectly linked as they correspond to network facilities. Some large items are linked to corporate overheads - again linked to sales, just not as directly. In terms of capital intensity - today it's about 21.5% of revenue. There is easily a 2-3 percentage point improvement potential on working capital as well as other line items. Steady-state ROICs - currently at 16%, but this can certainly go to 25% plus for our transport business. A small contribution will come from this capital intensity improvement. But the big factor will be overall profitability improvement. The adjusted EBITDA today at 6.3% has potential to go to at least 10%. Express EBITDA is already near 18%; PTL needs to get closer to 18%. Corporate overheads coming down to 7% of revenue takes adjusted EBITDA to about 11% from current 6%. That will be the biggest driver of taking ROICs from 16% currently to 25% plus.
We are seeing this kind of growth in the industry after a very long time - last time this happened everybody went into full CapEx mode. Is there a chance of CapEx intensity again increasing for the industry?
What happened with Ecom Express and XpressBees - they voluntarily set the balance sheets on fire. That's different from rational CapEx investment. I don't think anybody is going to get into an operating burn environment. If the question is broadly whether larger Express network volumes will change our capital intensity, the short answer is no. Not much of our CapEx is indexed to the express business any longer - growth in tonnage from PTL and the heavy part of Express has been driving capital intensity. Despite that, CapEx as a percentage of revenue has gone from 7.8% to 4.7%. We've learned how to improve network utilizations. More mega gateways will be needed over time but as a percentage of base capacity they'll be smaller than at the start. On whether other players will dial up capital intensity - most of them don't run integrated networks. And irrational pricing like three to four years ago? No, because everybody's seen that movie and knows how it ends.
What should one build in for express growth over the next couple of years from a medium-term perspective?
E-commerce as a whole growing at 15 to 20% - we've consistently maintained that is the likely growth rate into the medium term in India. On behalf of our customers, we anticipate they should see nothing less than 20% kind of growth rate, 15 to 20% growth rates for the industry as a whole. That's at least what our numbers suggest.
Question on planned investments on new businesses like Delhivery Direct, Delhivery Rapid - how are you looking at the scale up and what kind of investment can we expect in next couple of years?
Delhivery Direct is our intracity on-demand logistics service. The intra-city service is now live in six cities. The intercity service is really our parcel service targeted at very small businesses and consumers and is margin accretive. Combined, Delhivery Direct as a whole is probably profitable. The logic for intracity is the same as for all businesses we've built - Delhivery itself is a large consumer of the service we intend to launch (we require on-demand logistics across our own distribution, service and fulfillment centers). When a service reaches critical demand we can generate ourselves, we externalize and open to external customers. In fiscal 26, we invested about 76 crores, large portion toward on-demand intracity. Fiscal 27 investment is broadly between 130 and 160 crores as guided in the shareholder letter. This gets us to north of about a 200-crore run rate in on-demand intracity logistics external GMV. On-demand intracity is a very large underserved space. Porter has done a very good job servicing it and there's room for Delhivery as well.
First, on FCF positivity - if we exclude the benefit from Ecom acquisition in OCF, will we still be FCF positive in FY26? Second, on fleet size which has seen a drop on a QoQ basis despite higher PTL tonnage - is this an increase in tractor-trailer efficiency or deliberate right-sizing after integration?
On FCF, the question is not correctly framed. The Ecom Express related costs we incurred (integration costs) have actually brought down our OCF. Had there not been those costs, our actual core business free cash flow would have been meaningfully higher than the 89 crores number. On fleet - the KPI slides show vendor fleet used on a daily basis. We use two kinds of fleet: contracted monthly fleet and a variablized fleet where partners bring their own vehicles paid on a per-kilo basis. The reported number includes only the first type. The mix between the two kinds of fleet changes quarter on quarter depending on geographical mix and client mix of volumes. The only reason fleet number is going down is because the share of the per-kilo fleet has actually gone up - nothing to do with tractor trailers. Our tractor trailer count has actually gone up QoQ.
With crossing 10,000 crores in revenue and dominating road transportation, do you think about getting into other modes of transportation? Is it the right time to get into something beyond road in a big way?
Road still offers a very large and untapped opportunity for Delhivery. In India, distances are not large enough for alternate modes of transport - you can truck from Delhi to Bombay on our tractor trailers within sub 20 hours so there's no massive incentive to move towards rail. The railway system in India is designed for passengers, not cargo - not a proposition for our kind of business. Road will predominantly remain the focus. On air, Delhivery certainly has the baseloads to make a larger air network viable. We continue to fly commercial passenger belly, which suits our overall requirements. Running a subscale fleet of air freight doesn't make sense - a four or six-plane network would be too high cost. Over time, we will look at partnerships with airline companies for strategic ventures in air cargo. Right now, the airline industry has a lot to think about and it's not an immediate priority.
On the PTL side - over the last two to three years you've done extremely well gaining market share, but there's still some gap between you and the number one player. Do you have all the ingredients in place to chase that now or are there certain things you'd still want to add?
The fact that we have everything we need to achieve a leadership position in PTL is something we've demonstrated over the last three years - both in being the fastest growing player and growing from sub 300,000 tons (around 280,000-290,000 tons) to 550,000 tons this quarter. Our gross margins have gone from 14% to 28% - doubled margins and grown the business 1.8 times over the last two and a half, three years. We're pretty confident we will continue to be the fastest growing player in this space. Varun Bakshi should weigh in.
On PTL market share playbook - any closing thoughts?
The playbook is there and it's not a one or two quarter affair. It's been two to three years of consistently doing this. We just have to keep on repeating - get BD guys at the right place, reach the right customer, keep having conversations, make sure a customer who has 500 units of business starts with 2, 3, 4, 5 units and increase wallet share from there. In terms of product or service, we have fair bit of control on what's happening. We're able to gain share of wallet and do the right thing in terms of margins. We just have to keep on doing what we have been doing over and over again at multiple geographical locations.