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Bengaluru: Sahil Barua, cofounder and CEO of Delhivery, which will launch its initial public offering (IPO) for subscription on May 11, told ETtech that the logistics and supply chain company was not worried about valuations in the short- term as markets eventually value businesses correctly in the long-term. Barua was talking about how investors may have priced the company if it had listed last year amid the euphoria in India’s startup ecosystem and overall capital markets.

Delhivery is targeting a $5 billion valuation when it makes its public market debut in a price band of Rs 462-487 per share. The pricing and size of the IPO were readjusted as macroeconomic and political sentiment turned choppy globally earlier this year, even as the uncertainty continues.

Shareholding pattern_Graphic_ETTECH

Barua told ETtech that he took the suggestion of his experienced board on the IPO and decided to go ahead with it as ” a large, mature and well-understood business”. Delhivery should be able to float its issue despite less-than-ideal conditions, he said.

“(Delhivery) has reached a stage in its evolution that gives us confidence…We have a mature business model. And we are on track to achieve $1 billion in revenue,” Barua said. He said while Delhivery relies on technology, logistics is a business that’s well-understood by public market investors.

According to the company, it clocked revenue from operations of Rs 5,170 crore, or close to $700 million, in the nine months of FY22 ending in December 2021.

Barua, who cofounded Delhivery over ten years ago, along with Mohit Tandon, Bhavesh Manglani, Suraj Saharan and Kapil Bharati , said optimising for short-term notional valuation gains doesn’t make sense. The valuation would have played a bigger role, he said, if the IPO had a larger offer for sale (OFS) portion, making a difference to investors’ exits.

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“If you look at great IPOs like DMart — it is a stock that has never traded below its IPO price…. that is the ambition we have. We want to price it in a manner that our investors make a substantial amount of money and where ultimately there is very clear visibility of how the stock compounds,” said Barua, who owns 2.08% in the company and does not plan to sell any of his shares in the IPO.

Delhivery was valued at $3 billion following a $277 million funding round form Fidelity, GIC and others last May. It raised another $125 million from former Tiger Global partner Lee Fixel’s new venture fund Addition in September but a secondary share sale by Fosun valued it at $4 billion, ETtech reported on October 4.

New-age firms such as Zomato, Nykaa, Policybazaar and Paytm made a beeline for the local bourses last year, but are now trading well below their highs since listing. Paytm has seen its share price decline more than 70% from the issue price.

Barua said one of Delhivery’s biggest strengths is that it is not a discretionary business and that investors understand that such companies offer better solutions to solve logistics problems. They feel we are not trying to change user behaviour, he added.

He told ET the company has also improved its profitability significantly over the last few quarters. “Growth and profitability are not conflicting objectives for Delhivery at this point. And the question is now improving margins as the operating leverage has started to kick in the last three quarters,” he said. Delhivery had a negative Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 0.57% in the first nine months of FY22 compared to -11% in FY19, he added.

Will look at M&As in core business only
Sandeep Barasia, executive director and chief business officer at Delhivery, said the Gurgaon-based startup is doubling down on expansion in India, and will be looking at M&As in core operating areas that can add value to the company.

“Either these will be businesses that have helped us scale one of our segments faster or it will be capabilities that we do not have in-house… What we will not do is take minority stakes, act as a financial investor or buy businesses that are not core to us,” Barasia told ET.

Of the Rs 5,235-crore public offering, Rs 4,000 crore will be through a primary share sale while the remaining will be through an OFS of Rs 1,235 crore. In an OFS, existing investors sell some or all of their shares new investors and the money does not go to the company.

In Delhivery’s OFS, investors such as Fosun will sell shares worth Rs 200 crore while SoftBank and Carlyle will divest holdings to the tune of Rs 365 crore and Rs 454 crore, respectively. Times Internet, which is part of the Times Group (BCCL), is also divesting shares worth Rs 165 crore in the OFS.

Delhivery plans to use Rs 2,000 crore from the IPO for organic expansion and another Rs 1,000 crore for inorganic growth through acquisitions and other strategic initiatives. The rest of the proceeds will be for general corporate purposes, the company said.

“We have a very large addressable (domestic) market as I have talked about multiple times. We will continue to double down on the addressable market,” Barasia said.

He said Delhivery has continued to diversify after being an ecommerce-focused company. In FY19, 85% of its business came from express parcels, which is primarily ecommerce, he said. “If you look at the first three months from FY22 that is 57%. 43% of the business is non-express parcels.”

IPO exit route_Graphic_ETTECH

Even as Delhivery continues to focus on its business-to-consumer (B2C) deliveries business, Barua said the company is unlikely to be a player in the quick delivery (10-20 minutes) space as the business model is still evolving.

“If ever 10-minute delivery is something consumers are willing to spend on for low-cost items, Delhivery will be as well positioned to do it as we are today. But as of now it is just not a focus area for us,” he added.

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