Shares of logistics and supply chain startup Delhivery have slid below the IPO price in the grey market ahead of its listing on May 24.
The stock was already seeing muted volumes in the grey market after the IPO saw a dull response from retail and high net worth investors. The stock hit a peak premium of Rs 8-10 on May 1. The premium fell to Rs 3-4 on Wednesday. On Thursday, it turned minus Rs 3-6, a dealer said.
The tepid response in the grey market was also due to continued losses reported by the firms with weak cash flows. Its IPO price band was set at Rs 462-487 a share.
The company made a loss of Rs 891.14 crore for the nine months ended December 2021 and in FY21 it posted a Rs 416 crore loss. Revenue in the nine months ended December was Rs 4,911 crore; FY21 revenue was Rs 3,838 crore.
In FY21, it reported a negative free cash flow of Rs 246 crore versus Rs 848 crore in FY20. At the same time, freight, handling, and servicing costs have gone up from Rs 2,026 crore in FY21 to Rs 3,480 crore in the first nine months of FY22 (Rs 4,000 crore in FY22A).
"The firm is demanding 5.5x the price to sell." All the other logistics players are making profits. Given fuel cost increases and supply chain and logistics issues, the costs for fulfilment will keep pinching them more. "There are better players in the listed space already making profits, and as an investor, one can look at them," analysts said.
Analysts claim that the combined market cap of peers TCI Express, Blue Dart, Gati, VRL Logistics, and Mahindra Logistics is less than the market cap of Delhivery at around Rs 35000 crore and most rivals are profitable.
"Future equity dilutions are also an overhang as the company may need to keep diluting to keep doing their capex as logistics is a very capex-heavy business. "To augment their capabilities, they need to invest in physical infrastructure to fulfill those incremental orders that will add to the cost," said Aditya Kondawar, IPO expert at JST Investments.
The IPO got a lukewarm response from retail and high net-worth investors, with their categories subscribed at just 0.57 and 0.3 percent, respectively. The institutional buyers booked 2.66 percent of their quota.