Can you tell me why Credit Suisse has given a buy call on Delhivery?

Recently listed digital logistics player, Delhivery Ltd, has got its first affirmation from Credit Suisse. The leading global broker has initiated coverage on the stock of Delhivery with a buy call and a price target of Rs675. This is rather surprising brave, especially if you consider the performance of stocks like Zomato, Paytm and Policybazaar since the time of their listing earlier last year. Let us understand what is the logic behind this call.

At the outset, Delhivery is also a loss making start-up with limited profit visibility in the next few quarter. However, the good thing is that their losses have remained static in the March 2022 quarter despite sales doubling on a yoy basis. The advantage for Delhivery, according to Credit Suisse is the scalable model that is ROI accretive. Remember, Delhivery is not a typical logistics but more an IP based logistics company that owns the process flow.

Some of the justifications provided by Credit Suisse are quite compelling. An interesting point made by Credit Suisse on Delhivery is that it has zero customer acquisition cost. That almost puts it in a unique position compared to other digital plays. In terms of valuation, Delhivery offers much better visibility on earnings and growth to the investors. In short, Delhivery is about is a service where demand is secularly linked to the GDP growth.

To use the Buffettian analogy, Delhivery also has a moat or a unique edge. In the case of Delhivery, the moat is in the form of scale that is almost unmatched. Also, the network complexity and ownership is an edge. Above all, the versatile technology platform and the IP of back-end logistics management are key advantages for Delhivery. Remember, it is proprietary. Revenue growth is pegged at 29% CAGR, so the story is all set.