Brokerage firm Prabhudas Lilladher has maintained a 'Hold' rating on Delhivery with a target price of Rs 503. The decision follows Q1 FY27 results, which showed strong revenue growth but a 65% drop in net profit due to rising operational costs and integration expenses. Investors may track the company's ability to pass on these increased costs to customers through contract updates.
Prabhudas Lilladher has kept its 'Hold' rating on logistics major Delhivery, setting a target price of Rs 503. This decision comes after the company reported its Q1 FY27 results, which highlighted a mismatch between rising revenue and falling profitability. While the company achieved a 28% year-on-year growth in revenue, its net profit declined by 65% during the same period, signaling operational challenges that have concerned analysts.
The margin pressure is primarily driven by three factors: rising fuel prices, wage inflation in key states like Haryana, Karnataka, Uttar Pradesh, and Punjab, and the costs associated with integrating the recent Ecom Express acquisition. These operational expenses impacted the company's EBITDA margins, which stood at 4.9% in the first quarter, lower than the brokerage's 7.0% estimate. The difficulty in passing these increased costs on to customers through contract repricing remains a challenge that investors should track closely.
Despite these short-term profitability hurdles, the brokerage maintains a positive outlook on the company's sales trajectory. Prabhudas Lilladher expects Delhivery to achieve a sales compound annual growth rate (CAGR) of 18% over the next two years. The company is actively working to recover its margins by using fuel pass-through clauses, which allow it to charge customers more when fuel prices rise. However, these adjustments often take time to reflect in the balance sheet, especially concerning wage-related inflation.
For the current and next financial year, projections for EBITDA margins are placed at 6.7% and 9.5% respectively. The main monitorable for shareholders will be the speed at which Delhivery can improve its margins while balancing volume growth. Successful integration of the Ecom Express business and stable realizations in its express parcel segment will also be critical factors in determining whether the company can meet these operational targets in the coming quarters.