How do you plan to utilise the IPO proceeds?
Sahil Barua: We have been preparing to go public for some time now. Our board has been put together to guide the management team on what life is like as a public company. For us, operationally and as a business, nothing fundamentally changes.
We are India’s largest and fastest growing integrated logistics company and our intention is to continue to grow larger and to continue to build out the products and services, whether it is in parcel delivery or freight or full truck load freight cross-border logistics or warehousing. In order to become larger, more efficient, more reliable and faster, we continue to invest in technology and in building out the infrastructure that helps run our business and in some senses, nothing really changes for Delhivery.
We are going to continue to do what we have been doing. We are going to invest and continue to scale and add new products and services. From the responsibilities that come with being a public company, we are looking forward to our first earnings call which will be in about a week and it is a process where we have to ultimately take our story to investors.
We have to educate investors on our business, our financials and how we intend to run the business going forward. Historically, the way we have looked at acquisitions is there are two areas that are important to delivery; one is when we buy a complimentary network. For example, last year, we bought Spoton, which was a leading and fast growing Part Truck Load freight player and we have integrated that with Delhivery operations.
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They bought a huge amount of complementarity to our network, expanded the scale of our freight business, brought immediate efficiencies to our Part Truck Load business and more importantly, the advantage of running an integrated network like Delhivery, where all of our businesses share assets, infrastructure, people and systems. That is when we gain scale in one part of our business while it brings positive network effects to other parts of our business.
So the acquisition of a network business like Spoton not just improves our position in Part Truk Load freight but also improves the economics of our parcel business.
The second type of acquisition that we look for are technology acquisitions which expand the services that we provide. For example, we acquired a company called Roadpiper which allows us to expand our offerings for fleet owners in our truck load business. We look for opportunities which are either large networks or core technology applications that extend our stack.
You are talking about the asset light model and the fact that you are a technology-driven company. Walk us through the technological moat that you have. What is the leverage that Delhivery provides versus other beers?
Sahil Barua: We have built over 80 different applications for supply chain and logistics and these applications are used not only by us and our operators but also by our partners, clients and customers. The technology allows us to be in an asset light model. Think of it as a kind of a market place where we aggregate demand from our clients, our customers and then we distribute it to our partners, who go and fulfil those demands or deliver those shipments on our behalf. That is something that we have been doing for almost 10 years.
Right now, in the last two-three years, we have also been focussing on how to take this technology stack and start standardising it. We went live with the region outside of India earlier this year and the plan is to continue expanding into other geographies. We also collect a massive amount of data – over a terabyte of data on a daily basis – of all our assets, all our people who are on the ground and all our trucks that drive pretty much every highway of the country every day. On every kilometre of the highways, we capture the telemetric data, capture the trace information from different handle devices, capture all the information of all the parcels that we have delivered to our customers in the last 10 to 11 years. That totals over a billion different customers. All that information helps us use data intelligence tools AI, ML, different models to make our location stack a lot more intelligent, enables us to reach to our customers much faster, in a more precise fashion. That is how technology has been helping us in the last couple of years.
We recently saw some excise duty cuts coming in for fuel. This has been a transitory cost for you. How much are you looking to take price cuts for your truck loads as well? How does your business get impacted?
Kapil Bharati: Fuel obviously is an important component of logistics costs overall but let me put this in context. Delhivery’s margins show that in an inflationary fuel environment, especially over the last two quarters, Delhivery’s margins have actually improved and we have not passed on these costs to our customers as yet. That points to the amount of operational leverage that exists in our business and our ability to utilise our assets quite effectively.
More importantly, in our mid mile operations, which is a very significant portion of the overall fuel cost that we bear, our ability to orchestrate our trucks through the technology and the systems that we have, our ability to better utilise the trucks that we have and our fleet of trucks itself where we now run tractor trailer operations across the country for both parcel and freight allow us to actually absorb a lot of those costs. So to give you an example the larger trucks that we run are anywhere from 15% to 30% more efficient than the smaller trucks that we used to run and so our ability to absorb the fuel cost is higher and we do not end up passing it on to customers. Obviously the reduction in fuel cost is beneficial to us but it does not fundamentally change our strategy with regards to our customers.
What are the capacity expansion plans? You already have 82 gateaways and 3.5 million passes per day. is something that you sought. How much more are you planning to increase your capacity by FY23?
Kapil Bharati: So we will continue to expand sortation capacity. Historically, our sortation capacity gets built in waves. We have had mega facilities go live in Gurgaon, Mumbai and Bangalore. I think the next set of mega facilities will go live across locations like Kolkata, Hyderabad and we will invest in automation hardware and in parcel sortation systems and freight sortation systems in these locations. Our expectation typically is that we will close to about 2 to 4 million square feet of infrastructure on an annual basis.
This includes both transportation facilities like hubs and sought centres and also fulfilment centres and warehouses. However, as the demand for warehousing increases and as our end to end supply chain business grows, this number could be larger than the 2 to 4 million that we have been having historically.