Delhivery, a prominent unicorn in the logistics industry in India, has taken a crucial step by voicing reservations about statements made by rival Ecom Express in its draft red herring prospectus (DRHP), which was submitted in advance of the company’s first public offering (IPO). Delhivery claims that Ecom Express has falsified shipment numbers, cost per shipment (CPS), and profitability measures in order to deceive investors and give an incorrect picture of the two businesses’ comparisons. The market’s perception of both firms and their respective performances may be impacted by the exchange filing by Delhivery, which draws attention to a number of disparities in the reported data of Ecom Express. This essay explores how Delhivery’s problem can affect investor sentiment, the IPO of Ecom Express, and the logistics industry as a whole.
Credits: Money Control
Discrepancies in Shipment Volume Calculation
One of the key issues raised by Delhivery revolves around the calculation of shipment volumes. Ecom Express counts both the forward journey of a shipment and its return to origin (RTO) as two separate shipments. Delhivery, on the other hand, counts a shipment only once, regardless of whether it is successfully delivered or returned. As a result, Ecom Express reported 514 million shipments for FY24, compared to Delhivery’s 740 million. However, according to Delhivery, once industry-standard RTO rates of 14-18% are accounted for, Ecom Express’ actual shipment volume would be closer to 450 million, significantly reducing the gap between the two companies’ volumes.
This discrepancy can mislead investors into believing that Delhivery holds a smaller lead over Ecom Express in terms of shipment volumes than it actually does. By inflating its shipment numbers, Ecom Express may appear more competitive, which could affect investor confidence and valuation during its IPO.
Impact on Cost Per Shipment (CPS) Metrics
Delhivery has also raised concerns over how the CPS metrics are calculated in Ecom Express’ DRHP. The CPS is a critical measure of operational efficiency, calculated by dividing total attributable costs by the number of shipments handled. Delhivery argues that by double-counting RTO shipments, Ecom Express understates its CPS, making it appear more cost-efficient than it actually is. Delhivery’s calculations suggest that Ecom Express’ CPS would increase by approximately ₹7, or 15%, if the shipment volumes were adjusted for a like-to-like comparison.
For investors evaluating the profitability of logistics companies, accurate CPS figures are crucial. Any misrepresentation of these metrics can skew perceptions of operational efficiency, potentially leading to incorrect investment decisions. Delhivery’s challenge could prompt closer scrutiny of Ecom Express’ DRHP, which might force the latter to issue clarifications or adjustments.
Concerns Over ‘Service EBITDA’ Comparisons
Delhivery has further questioned the comparison of “Service EBITDA,” a non-statutory metric used by both companies. Since the exact calculation of Service EBITDA can vary internally and is not a statutory requirement, Delhivery claims that Ecom Express may not have a clear understanding of how Delhivery defines its corporate costs. Without uniform definitions, comparing Service EBITDA between two companies is not a straightforward process and can lead to misleading conclusions.
The lack of clarity around this metric adds to the confusion for investors who rely on such numbers to assess financial health. In the highly competitive logistics sector, where profitability margins are slim, accurate financial comparisons are key to making informed decisions. Delhivery’s challenge could result in a re-evaluation of the use of non-statutory metrics in the logistics space.
Differences in Customer Mix and Shipment Weight Profiles
Another important distinction highlighted by Delhivery is the difference in customer concentration and shipment weight profiles between the two companies. Ecom Express reportedly derives 52% of its revenue from its top customers, compared to only 16% for Delhivery. This high customer concentration could expose Ecom Express to greater business risk, especially if any major client switches providers.
Additionally, Delhivery notes that its average shipment weight is roughly twice that of Ecom Express due to a more diversified client base. This difference can significantly affect per-shipment profitability and operational costs. By not factoring in these variables, Ecom Express’ DRHP could give investors an incomplete picture of its performance.
Conclusion
The challenge by Delhivery against Ecom Express’s DRHP raises important concerns regarding the financial metrics’ transparency in the logistics industry. Investor perceptions of the relative strengths of the two companies may be affected by differences in shipment volume, CPS, Service EBITDA, client concentration, and shipment weight. It is now Ecom Express’s responsibility to fix these issues and offer more transparent financial disclosures as it gets ready for its initial public offering (IPO) in order to keep investors’ faith and guarantee a successful listing.
