Delhivery Ltd

NSE:DELHIVERY

Earnings Call Analysis

Steady Growth and Improving Profitability for Delhivery

Delhivery's Q1 FY'25 earnings call reported a 13% YoY top-line growth with an EBITDA of 4.5% and adjusted EBITDA of 1.7%. Key highlights include 6% YoY revenue growth in the Express Parcel business and a 25% increase in the Part Truckload (PTL) segment. The company achieved improved profitability across all segments, with significant contributions from heavy goods and new supply chain services. Anticipating a robust pipeline and sustained growth in the PTL business, Delhivery aims to maintain 18-20% margins in the Express sector while potentially exceeding these levels in the PTL sector.

Strong Start to the Year

Delhivery Limited reported a robust performance for the first quarter of FY 2025, validating its growth strategy. The company experienced a 13% year-on-year revenue growth, reaching ₹2,172 crores. This growth was broad-based across sectors, with particularly notable expansion in the Part Truckload (PTL) business, which surged 25% year-on-year due to both volume and yield improvements. The Supply Chain Services (SCS) segment also shone, with a significant 26% increase driven largely by seasonal demand, particularly from customers in the air-conditioning sector.

Profitability Gains

Despite facing challenges, Delhivery's adjusted EBITDA improved to ₹37 crores, translating to 1.7% of sales, up from a negative ₹25 crores in the same quarter last year. This marks a positive trajectory in profitability even as the company manages costs effectively amid a competitive landscape. The Express Parcel service maintained a stable EBITDA margin of 18%, while PTL operations improved their margins to 3.2%, reflecting strong operational execution and customer mix optimization.

Customer Base Expansion

Delhivery's customer base has expanded from 33,000 to nearly 35,000 within the quarter, indicating growing acceptance of its logistics solutions. The company is not just focusing on large enterprises but also targeting the long tail of smaller businesses, thus broadening its market reach. The growth in customers is critical in sustaining revenue momentum, with the Express Parcel segment growing organically by 6% year-on-year.

Investment in Infrastructure and Cost Efficiency

In Q1, Delhivery undertook substantial capital expenditure totaling ₹80 crores, primarily on vehicles, automation, and machinery. This investment is poised to enhance operational efficiency and support future growth. The adjustment of depreciation methodology from the Written Down Value (WDV) to the Straight Line Method (SLM) is also expected to yield long-term benefits, granting the company enhanced financial clarity and stability in reporting.

Guidance on Future Growth

Looking ahead, the management has indicated a positive outlook, anticipating steady-state volume growth aligned with the overall e-commerce market growth forecast of 15% to 20% annually. The stable margin range of 18% to 20% for the Express segment offers reassurance to investors, while PTL's margins are expected to follow suit, potentially exceeding those of the Express segment as operational efficiencies are maximized.

Market Dynamics and Competitive Edge

Delhivery acknowledges the competitive landscape, particularly the in-sourcing strategies employed by major players like Meesho affecting logistics. However, the company remains confident about maintaining its strong position in the market, driven by superior service offerings. Plans to leverage networks for last-mile delivery and quick commerce are also in the pipeline, underscoring Delhivery's adaptability to evolving market needs.

Impressive Operational Efficiency

With an operational capacity designed to handle greater volumes than currently managed, Delhivery is set to benefit from scale efficiencies as the PTL sector ramps up. The lower freight costs, which have declined 180-190 basis points year-on-year, coupled with improved utilization of the network, offer additional potential for margin expansion moving forward.

Earnings Call Transcript 2025-Q1

[Aditya Suresh, analyst]

Good evening, everyone. Welcome to 1Q '25 Earnings Call of Delhivery Limited, hosted by Macquarie. Before we start, Delhivery would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.

Kindly note that this call is meant for investors and analysts only. If there are representatives from the media, they're requested to kindly drop off this call immediately.

To discuss the results, I'm pleased to welcome Mr. Sahil Barua, Managing Director and Chief Executive Officer; Mr. Amit Agarwal, Chief Financial Officer; and Mr. Vivek Pabari, Head of Investor Relations at Delhivery.

[Operator Instructions] I thank the management team for providing Macquarie an opportunity to host the call. I now host -- I now invite Mr. Sahil Barua to take us through the key highlights of the quarter post which we will open up for Q&A. Thank you and over to you, Sahil.

[Sahil Barua, executive]

Thank you, Aditya. Thank you, Macquarie team. Thank you to all of you who joined our earnings call this Friday evening. As always, we'll begin with a short presentation on financial and operational highlights from the quarter that's passed and then we'll be happy to take questions.

The broad summary for the quarter is we've seen a quarter of growth from quarter 4 last year, significant growth from our B2B business, both in the PTL space and the supply chain services and steady volume growth in this business with an improvement in profitability across all of our businesses. At this time, I'll invite our CFO Mr. Amit Agarwal, to actually walk us through the presentation, and then I'll be happy to take questions after that. So over to you.

[Amit Agarwal, executive]

Hi. Good evening, everyone. We had a fairly steady and profitable start to the fiscal year, where our top line grew by about 13% on a Y-o-Y basis. And our EBITDA for the quarter was at 4.5% and adjusted EBITDA was at 1.7% for the quarter. Express Parcel service EBITDA remained stable at 18%, while there was continued improvement in Part Truckload business service EBITDA to 3.2%.

Express Parcel business grew across all non-large marketplaces segments. And within that, we also grew significantly within the heavy goods category of about which we'll talk more later in the call. Part Truckload business grew 25% year-on-year on back of both volume increases and yield improvements. And SCS business growth was 26% Y-o-Y due to seasonally strong quarter for air conditioning customers. And we have a robust pipeline of customers across several sectors in auto electricals and FMCG.

Overall, revenue grew to 12.6% year-on-year basis and 4.7% quarter-on-quarter basis. We did 183 million parcels in Express Parcel, which represented a growth of 0.6% Y-o-Y and 4.1% quarter-on-quarter. Part Truckload business was just short of 400,000 metric tons of load on back of 16% Y-o-Y volume increase and 3.9% quarter-on-quarter volume increase. EBITDA was at INR 97 crores or 4.5%, while the adjusted EBITDA was at INR 37 crores or 1.7%.

Both these metrics have improved in the range of low to mid-single digits on both Y-o-Y and Q-o-Q basis. PAT was INR 54 crores for the quarter or 2.4%. This includes a positive impact of about INR 39 crores while we have moved from WDV depreciation method to straight line method and INR 20 crore reversal on ESOP cost for leaving employees in the past quarter.

There was a INR 5 crore exceptional item as well. Excluding all these things items, the PAT was breakeven for the quarter on a like-to-like basis compared with previous quarter. We continue to operate our business of a steady network and infrastructure with no material capacity additions. While growing the business, we have expanded our customer base importantly from 33,000 customers to nearly 35,000 customers in this quarter.

All other infrastructure metrics have remained stable or have slightly been geared for efficiency while the team size and partner size and fleet size have improved in line with the business. In Express Parcel, we have grown our revenues Y-o-Y 6%, while quarter-on-quarter 5%. The volume increase Y-o-Y is 1% and quarter-on-quarter is 4%. As I mentioned earlier, this is due to higher mix of heavy goods in our business on a Y-o-Y basis, due to which yield has expanded.

Part Truckload saw revenue increase of 25% Y-o-Y and a freight tonnage of 16% Y-o-Y coupled with 8% yield improvements. Yield improvement has been an outcome of efforts on pricing and mix improvement in this business. Truckload services witnessed a 19% growth Y-o-Y basis and a 10% degrowth quarter-on-quarter due to selective bidding and RFQs which has resulted into 1% improvement in our service EBITDA and this business grew 3.2%.

Supply Chain Services grew 26% Y-o-Y basis due to a seasonally strong quarter for air-conditioning customers. And cross-border has grown 2% Y-o-Y and 39% quarter-on-quarter. The most of the increase quarter-on-quarter in cross-border is on back of both volume and yield increases in the ocean freight market that we have witnessed. The service -- the overall service EBITDA for the business is at INR 258 crores or 11.9%, which represents a 1.7 percentage improvement on a Y-o-Y basis and 40 bps improvement on a quarter-on-quarter basis.

Express Parcel service EBITDA has held constant on a Y-o-Y basis, while has expanded by about 60 bps on a quarter-on-quarter basis. Part Truckload service EBITDA continues to improve as we improve our customer mix and efficiency in operations and it is at 3.2%. Supply chain services or service EBITDA margins were 4.4%, slightly below 6% last quarter, primarily due to increase in trucking and manpower cost due to sudden spikes in demand for services in the quarter. Our corporate overheads have remained consistent in a range of about INR 215 crores to INR 220 crores and they are at about INR 221 crores, this is after the impact of wage inflation that we passed to the employees at a company level.

And as a result, the adjusted EBITDA for the company is at INR 37 crores or 1.7%, which is 3% higher than same period last quarter -- last year. Adjusted EBITDA, we've talked about increasing to INR 37 crores in quarter 1 FY '25, which was negative INR 25 crores same period last year and represents roughly about 3 percentage point improvement on a quarter-on-quarter basis a INR 16 crore improvement of 0.7% improvement. So overall, revenue from services increased from INR 2,076 crores last quarter or INR 1,930 crores a year ago same quarter to INR 2,172 crores which is 4.7% increase quarter-on-quarter or 12.6% increase Y-o-Y basis.

Most costs increased in line with the volume increases in the business with minor efficiencies coming in on freight handling and other expenses for the business. There were two or three critical items, I would like to point out here that employee benefit expense, share-based expense dropped from INR 49 crores to INR 21 crores from previous quarter to this quarter due to INR 20 crores reversal for stock charge on account of employees leaving in the last quarter.

We have both performance and time-based stock options. So this was a contribution coming in from both performance and time based options, which were lapsed and added back to the pool. And there is a property, plant and equipment depreciation change in the quarter. where it was INR 83 crores a year ago to INR 44 crores this quarter due to movement in depreciation policy from WDV to straight line method. We have given more details in annexures on what is a like-for-like comparable for a change in depreciation policy and how this affects this year, rest of the quarters and the future years.

Broadly, there is roughly about INR 180 crores positive impact expected in depreciation from prior period CapEx into FY '25 and then there is about a INR 40 crore improvement next year, after which it is a slightly negative impact. The -- yes, this, as a result, has led to overall profit after tax of INR 54 crores for the company in quarter 1 of FY '25.

[Sahil Barua, executive]

Thank you. Aditya, happy to start taking questions.

[Operator]

[Operator Instructions] We'll take the first question from Sachin Salgaonkar.

[Sahil Barua, executive]

Sachin, if you're saying something we can't hear you.

[Sachin Salgaonkar, analyst]

Yes. Sahil, so I just got an option of unmuting myself so I did unmute myself. I have three questions. First question, Amit, I wanted to understand any specific reason for change of DNA methodology from WDV to straight line?

[Amit Agarwal, executive]

Sure, Sachin. There are a number of reasons why we chose to move to a straight line method from WDV method. Number one is to be in line with our industry comparables. When we looked at most of our competitors, they are on straight-line method. Number two, when we adopted WDV method many years ago, Delhivery was entering into a CapEx cycle where we were not 100% sure of how the asset quality would turn out over its life, how the performance would evolve over the life of an asset.

And hence, we thought that it would be appropriate for us to more effectively depreciate these assets in our books. However, given we have operated our first generation of sorters, which was much more light in quality versus what we deploy now. Those assets have lasted well over 9, 10 years, 9 years for us and the high-quality equipment that we are now buying and putting in our facilities is expected to last much longer than the useful life of asset that we have assumed in our books.

I also want to point out that we have not made any change to the useful life or the residual value of any asset type in our books for any of the assets. This reason, coupled with the fact that our maintenance costs for these assets is within what our AMC cost agreed with the vendors is for the useful life of assets, we do not see a reason for WDV to be the right method. Also, the disadvantage of WDV method is that when you have a bit of a lumpy CapEx, it tends to distort the profitability of the business on a face value.

But none of these changes, frankly, on a cash flow basis, whether we chose WDV or the SLM.

[Sachin Salgaonkar, analyst]

Pretty clear. Second question was mainly on the Express volume shipments. Is it fair to see that the worst is over and we should see a normalization of volumes going ahead and perhaps a move back to a strong Y-o-Y growth in terms of shipments out here?

[Sahil Barua, executive]

It's always a difficult question, given how volatile this market is. I think though we had indicated that we expected to see growth in this quarter, and we have delivered that despite the quarter being fairly volatile for the industry at large.

The next quarter, as you're aware, Sachin, is also going to contain the peak period and at least indications so far are that the peak period is likely to be a period of fairly decent growth for the industry. So I do think that volumes leading into this quarter and beyond should be strong. That said, I think this depends on a lot of sort of how should I put this at the platform level, I think strategy is fluid. And as it changes over the next couple of quarters, I think we'll wait and watch, but let me put it this way.

I anticipate that our steady state volumes will continue in line with what we forecasted, which is sort of annual growth rates in the e-commerce market of between 15% and 20%. And our numbers should be broadly range bound as well.

[Sachin Salgaonkar, analyst]

Got it, pretty clear. And my last question is one of the companies yesterday when the reported numbers stated that quick-commerce is gaining market share also at the expense of e-commerce and they had some pretty aggressive targets in terms of the number of dark stores they're opening. So the question to you guys is, is Delhivery doing something to piggyback on the last mile logistics on the quick commerce perspective. I do know that certain warehouses are being leased from you guys. But anything we could do to capitalize on the quick commerce growth opportunity?

[Sahil Barua, executive]

Glad you asked that question. I think on quick commerce or rather, let me put it this way, on rapid in-city delivery for e-commerce companies, we've launched a new product. We've run the mother warehouses in the past for quick commerce firms, but the intention is also to launch a network of shared darks for warehousing, which will be available to e-commerce companies to use on a multi-tenant basis, and then to provide a rapid local delivery basis those -- basis that fulfillment architecture.

That said, I think the consumer needs for quick commerce, obviously, especially on the grocery side, while it's fairly established, I think on the e-commerce side, as we look at the market, we still view it as being relatively sort of narrow in terms of its category penetration and its geographical penetration. To give you an example, Sachin, first of all certain categories, for example, like apparel categories, like heavies don't necessarily lend themselves to a quick commerce model at all.

One of the fundamental tenets of quick commerce is that the inventory underlying quick commerce has to be fast-moving inventory. The reality on e-commerce is that a lot of the inventory is not fast-moving inventory. So to give you an example, Meesho has as a marketplace platform doesn't necessarily lends itself to a quick commerce format. And when you add that up across categories, marketplaces, the long tail that's available online, our view is that the actual volume that's at risk on e-commerce actually is likely to be pretty small. And so I don't think 30 minute or 1 minute, 1 hour sort of delivery time lines are going to massively disrupt the broader swath of e-commerce.

I think they're on a certain narrow categories. And even within that, a set of narrow SKUs in those categories, where the model makes sense. We will provide dark stores. We will also provide a delivery service out of this dark stores. And to the extent that e-commerce companies want to use those on a multi-tenant basis, we'll help them variabilize that cost. But that's going to be a very significant driver of revenue for us in the short or the medium term.

[Sachin Salgaonkar, analyst]

Noted, pretty clear. One last small follow-up out here is in the past, from what I understand the unit economics were not fitting in this last mile logistics. In the new model what you guys are looking to do presume the unit economics will be better? Or is it something similar in terms of what we thought in the past?

[Sahil Barua, executive]

The unit economics of trying to deliver kajal in 20 minutes by itself to a consumer in Bombay are never going to be very good. And so that's not what we're aiming for either. I think we have to distinguish between how sort of quick commerce and allow me to create a sort of magical category here which is a rapid commerce, which is something like maybe 4-hour delivery or 2-hour delivery in the metros.

The unit economics for that, which allow a certain amount of consolidation and a certain amount of route optimization are still positive. I don't believe that the unit economics for sub 1 hour or sub 30-minute delivery for low-value products with not significant sort of value density and distance is higher than 3 or 4 kilometers in an urban environment like India is going to work out.

[Operator]

We'll take the next question from Vijit Jain.

[Vijit Jain, analyst]

Yes. So just following up on that question of Sachin. So basically, if I understood this right, you're going to offer a network of warehouses and dark stores to multiple companies and you would do fulfillment from warehouses to dark stores? Or are we talking about last-mile delivery as well here?

[Sahil Barua, executive]

We already do fulfillment from warehouses to dark stores, but also as an example, into retail and into distributors. This is going to be a service which also connects the last mile.

[Vijit Jain, analyst]

Okay. Got it. And Sahil just A little bit more color would be helpful on how this works in providing warehouse and dark store to multiple companies. What are we talking about here in general, the same companies can use -- multiple companies can use the same dark store?

[Sahil Barua, executive]

Yes. So it's essentially the process of creating micro fulfillment for most direct-to-consumer brands and creating a network of stand-alone dark stores is going to be too expensive. The simple reason is that capacity utilizations are very difficult to manage. So you could either end up with a situation where you over-inventorized the dark store at the last mile, which is going to lead to a -- the weight of the real estate cost and the storage cost of a fulfillment center in city, which will be at the bare minimum 2.5x the cost of a larger fulfillment center, which is outside the city.

Alternatively, you will end up with a location where you're paying rent for a large amount of space while stocking a very small amount of inventory. So the idea behind delivery is dark store network, which is going to be the same as the idea behind our fulfillment center network, is to allow companies to variabilize that cost. If we've got six customers, for example, in a location who are filling up a dark store, they can all sort of share that infrastructure, variabilize their operating expenses without having to bear the risk of either underutilization or capacity management.

[Vijit Jain, analyst]

Got it. And Sahil, do you anticipate some of the largest of these quick commerce companies to participate in this as well? Or do you think this is something that you'll see more reception from some of the smaller guys which are trying to catch up.

[Sahil Barua, executive]

The largest of the quick commerce companies in the sense? Sorry, can you just specify?

[Vijit Jain, analyst]

The top two, three most well-known companies, is that which would -- is that the set of companies, which also you think could use multiple tenant dark store model with you guys is what I'm trying to understand essentially?

[Sahil Barua, executive]

You mean the three -- I don't anticipate that there will be immediate consumers of our dark store infrastructure. In fact, I'd argue for them the problem that exists and a little bit of a digression from sort of our strategy is ultimately with limited shelf space. Their problem is not one of how do we bring more people into the dark store, it's really selecting what to put in a dark store which is probably already full. So I don't anticipate them being customers for it and also it's a very different kind of inventory.

Moving, as an example, rice and sugar with, let's say, 400 SKUs, which belong to a cosmetics company are going to be pretty different sort of from engineering and delivery standpoint. Ours is designed very specifically for direct-to-consumer companies and potentially some product lines at the larger marketplace itself.

[Vijit Jain, analyst]

Got it, Sahil. And Sahil, one last question -- just one last question, if I can. Just wanted to get -- because I think Amit mentioned some reference to heavy goods that you would talk about later on the e-commerce side. I just want to make sure that's covered.

[Amit Agarwal, executive]

So Vijit, as I mentioned, our yield in e-commerce parcel has gone up on a Y-o-Y basis by about 5.5%. This yield has primarily increased on back of higher mix of heavy goods category. There are certain initiatives that we have undertaken, which could potentially further increase the mix of heavy goods in our business. I also want to point out that this is one category, which is very unique to Delhivery amongst the 3PL that we service while our competitors are either not there or insignificant because of the LTL capability that we have. So the first mile and last mile capability between the two are shared.

[Operator]

We'll take the next question from Gaurav Rateria.

[Gaurav Rateria, analyst]

The first question is on Express Parcel. You did talk about growth coming from non-marketplaces. Could you elaborate on how broad-based this growth was across different categories within the e-commerce vertical, and also, I know that you started certain initiatives around C2C and other things, which are also part of the Express Parcel. Just want to understand how big those initiatives have become as a percentage of the revenue or a percentage of the total volume for the segment?

[Sahil Barua, executive]

Sure. In terms of overall growth in volumes from sort of the longer tail of e-commerce, which is essentially anybody who's not a marketplace, I think we've seen growth across all categories and across all client segments. In fact, to be fair, we've also seen growth in the marketplace segments, but the growth across the non-marketplace segments is fairly secular.

Vertical-wise, there's not that much of a split to be honest, because we've seen growth across all categories, both from direct-to-consumer, where they're more vertical and even from the absolute long tail or our SME business where we have probably close to about maybe about 10,000 different customers on the SME side.

So it's been overall sort of fairly good to see because it's been spread across categories, across customer sizes, across customer types, wherever they're non-marketplace. In terms of the consumer-to-consumer shipping, I think there are two parts to what we do.

One part is obviously via the delivery direct application which is where consumers can book packages or freight and now increasing. We're also launching another service where they can also book mini trucks as an example, in some locations directly using the application. That continues to see sort of fairly steady growth quarter-on-quarter. It's a bigger driver to be honest, of our brand perception. It's a driver of our yield and it's also a driver of profits. The other thing that we're doing, of course, is also essentially creating off-line resellers. So think of it as similar to a franchise program, pan India, where a local entrepreneur or a local courier shop can effectively direct volumes into the Delhivery network.

This today has been growing for us. We don't breakout the numbers exactly. So unfortunately, I can't reveal those, but this has been going for us year-on-year. The plan is to expand the penetration of our franchise network and to deepen it across states in India, which is all of the locations where we don't have direct business development reach, but our franchise partners have the ability to create SME volumes and to direct consumer volumes into us. Both of these are fairly solid drivers of profitability and revenue for us.

[Gaurav Rateria, analyst]

Got it. Second question, any sense if you could give us on how our market share has trended this quarter or last quarter or last 6 months within the 3PL segment, have you been gaining market share? Or it's been pretty steady. And a bookkeeping question for Amit, depreciation amortization has fallen quite significantly quarter-on-quarter. Even if you adjust for the INR 39 crores that you talked about because of the change in the methodology, the fall appears much sharper. So what would have been the reason for the fall?

[Sahil Barua, executive]

Sure, Gaurav. Very quickly on market share, I think the big move in the market or the big structural change in the market over the last several quarters which you're aware of and we've discussed earlier has obviously been we show internalizing a certain percentage of logistics themselves. I think that's led to a bigger rearrangement of the overall market. Interstate across the third-party logistics companies there hasn't been any significant sort of interstate movement of market share. So our position as the largest 3PL continues.

Book keeping question I'll let Amit answer.

[Amit Agarwal, executive]

Gaurav, we have a bit of seasonality in our CapEx cycle within the year. You will note that quarter 1 and quarter 2 are the periods when we basically start commissioning CapEx and quarter 3 and quarter 4 are the periods when that CapEx is completed on our books when its depreciation start. So that seasonality you should expect to see this year as well. To put this in perspective of numbers the CapEx in the quarter 1 was about INR 80 crores, the fresh CapEx that was done. And while last year, I think we would have done CapEx of close to about INR 500-odd crores for the full year, INR 550 crores. So as the CapEx catches up in the second half you will see price in it in the second half.

[Operator]

We'll take the next question from Sachin Dixit.

[Abhisek Banerjee, analyst]

Hi, this is Abhisek Banerjee. Quickly, on the question of quick commerce stores, I mean, of entering the quick commerce market. So the dark store network that Zomato is now talking about is about 2,000 dark stores by the end of April 2026, right. So -- and you yourself spoke about the kind of density that you need of your store network in order to make the unit metrics kind of work. So if I think that you will build as denser network as say, one of these people, then you are basically having to build about minimum 1,000 dark stores. over the next couple of years. And even if I take a CapEx cost of about INR 1 crore, that means another additional...

[Sahil Barua, executive]

Abhisek, let me cut in the answer to that is no. Because the delivery radii of the dark stores that you're talking about for 15-minute delivery of groceries. And as I had mentioned, 2- to 4-hour delivery of e-commerce products is not the same. So we are not going to have to build out 1,000 dark stores to service a city with 2-hour delivery. That's one. The second is do bear in mind that we already operate 3,450-odd delivery stations across the country. So we do not anticipate that we're going to have to build out anywhere near 1,000 dark stores nor will we have to incur significant CapEx to do so.

[Abhisek Banerjee, analyst]

Understood. That's helpful. Second is on the market share question. From what I understand is, of course, the part about in-sourcing has been hurting the overall revenue growth in Express Parcel for you, that is understandable. But any time lines as to how long you think this will continue?

[Sahil Barua, executive]

I think the big move, Abhisek has really been the growth of Meesho self-logistics. In terms of the other marketplaces they've been sourced previously as well. And per se I think their insourcing versus outsourcing strategies are fairly stable and we are materially important and large partners to both of the other marketplaces. In Meesho's case, I can't really comment for how long or what this exact strategy with their delivery network is going to be. What I can tell you is that we are large and sort of fairly high-quality partner to the firm. And they require high-quality logistics we deliver to their consumers. And as their consumers mature and consumers trade up and demand fulfillment experiences, which they are able to receive on other marketplace platforms Delhivery is a natural choice.

[Abhisek Banerjee, analyst]

But is there any data which shows the difference in SLAs between you and, say, something like a Valmo?

[Sahil Barua, executive]

Unfortunately, I'm not aware of what Valmo's published service levels are. I am aware of our service levels. And I think our service levels are ultimately the fact that they are pretty robust and are in line with consumer expectations is reflected in our market share of the third-party market and our share with the other two large market places.

[Abhisek Banerjee, analyst]

Fair enough. Sir, just last question on the employee expenses. Generally, there's a bump up in this quarter. This time, it didn't show through. So are we changing the increment cycle or what's happening there?

[Sahil Barua, executive]

No, there's no change in the increment cycle. It's the standard implement cycle, Delhivery's increment cycle ends in March and Q1 is when we essentially take the cost of wage inflation. So we had mentioned earlier to the market as well that when we went public also, we said that we don't anticipate a significant increase in our wage costs overall. We are build out to deliver a much larger business and much larger revenue and we don't anticipate the need for us to hire additional people and to increase the wage costs.

[Operator]

We'll take the next question from Sachin Dixit.

[Sachin Dixit, analyst]

Congrats Sahil and Amit on a great set of results. I have two quick questions. The first one was with regards to -- you mentioned that there was a contract with this just large customer in the last earnings call. Can you talk a bit about this contract? Like were there any price cuts involved as part of getting this contract and post that have you seen the sort of in-sourcing stabilize at those levels or it's still continuing to rise?

[Sahil Barua, executive]

In terms of the contract, I obviously can't get into specifics about the contract, but suffice to say, you've seen our yield. You've seen that the margins overall have improved between quarter 4 and quarter 1. So obviously, it's not a reductive contract as far as Delhivery rupee is concerned. I think the important thing in any contract that we negotiate with any customer is how to link pricing that we give them, which, as I mentioned before, our objective is to reduce the cost of logistics for all of our customers linked to the volume that they provide to us.

And that's the contract that we negotiate not just with any single marketplace but every one of our 35,000 customers, and that's the contract we've negotiated. Of course, the additional thing that we negotiate with all of our customers is also equivalently, should there be an adverse mix that they provide to us that we're protected against that. And that's sort of the standard contract that we signed. So you can see that reflected in our unit economics in any case.

[Sachin Dixit, analyst]

So have you seen any changes in the in-sourcing trajectory of Meesho or it's -- or you're not aware of those changes?

[Sahil Barua, executive]

I think we are satisfied with deliveries that we're getting and they are in line with our expectations, but if they've been reducing the share that they're providing to other third-party partners, I would be unaware of that.

[Sachin Dixit, analyst]

Understood. Second question, more like a housekeeping question. So on this ESOP reversal that was taken this quarter, wasn't this being done in earlier quarters as well? Or this was the first time that we did that?

[Amit Agarwal, executive]

This was done every quarter. There was a KMP exit last quarter Q2 which this affected.

[Sachin Dixit, analyst]

Understood. Just my final question on the INR 80 crores CapEx that you mentioned for the Q1. Can you roughly provide a breakup of that as well?

[Amit Agarwal, executive]

Sure. We have bought vehicles worth about INR 29 crores. These are Volvo trucks, automation of INR 4 crores and plant and machinery of INR 26 crores and [indiscernible].

[Operator]

We'll take the next question from Aditya Bhartia.

[Aditya Bhartia, analyst]

You spoke about market share in 3P market remaining the same. And given that Meesho has been in-sourcing a fair bit, is it fair to assume that market shares of the overall online sales would have gone down in the last year or so, not only for you but pretty much for everybody else as well.

[Sahil Barua, executive]

Yes. I mean that would suggest that.

[Aditya Bhartia, analyst]

And in the conversations that you've been having with Meesho, are you getting some sense about how exactly their strategy about in-sourcing is going to play out from a slightly longer-term perspective? Especially because while planning your capacity, I guess, at least some of your larger customers would be giving you some indications.

[Sahil Barua, executive]

No. I think among the many things that we discuss with our customers, sort of, as I mentioned, the strategies are fluid, their strategy on in-sourcing, I think, is also changing. So it's something that doesn't seem to be stable. The way we look at it is pretty simple. We provide a high-quality service at a cost that is extremely attractive to all of our customers, including the ones that's in-sourced not just limited to any single marketplace. Our objective is to meet our growth objectives and to meet our economic objectives and to protect those outside of which in our case do bear in mind that while we certainly provide an extremely important service to the e-commerce industry, it's not the only business that we do. And our ability to provide that high-quality service to e-commerce companies is also bolstered by the other businesses that we run. So we're very confident about our competitive advantages, overall, irrespective of what the change in strategy for any single sort of customer of ours might be. And we don't have a very high degree of dependence on any single customer in any way.

[Operator]

We'll take the next question from Mukesh Saraf.

[Mukesh Saraf, analyst]

My first question is on this Meesho in-sourcing itself. So is it fair to assume that Meesho would be in-sourcing most of the high-density locations initially at least. And this could also have -- I mean, apart from us getting the remainder volumes, but it also affects the quality of business we get from Meesho right now, low-density locations, et cetera?

[Sahil Barua, executive]

No, that would not be the case. We received volumes across all of our locations. And the reason also, Mukesh, I think so I was continuing one thing to bear in mind, well, there are two things to bear in mind. One is capacitating a network for what you might think of as a high-density location is also not a trivial exercise. The reality is that e-commerce volumes are fairly volatile at the last mile, it's really just the law of standard deviations, right?

I might be able to predict that my volumes in the city of Bombay will vary by only about 15% on any given day.

But that doesn't mean that my volumes, for example, in the micro locality of Chembur will not vary by 600%. And for the ability to capacitate at the extreme last mile is extremely difficult. So either you have to run networks, which are under capacitated and higher cost, which, as you're aware, some of the other sort of in-source players have discovered over the last decade or so. Or alternatively, if you're capacitating to meet a cost objective, which if you're selling sort of low AOV products, you have to do, then ultimately, you have to outsource a lot more. It's unfortunately not possible to escape that math. Really merely take identity locations and outsource the others.

[Mukesh Saraf, analyst]

Got it. Got it. Second question is related to this, I mean, now that we'll see the volumes from Meesho come of and obviously, the D2C share for us goes up. We are also seeing in the market that some of the traditional logistics players in the D2C segment are pricing very aggressively. Do you see this kind of impacting us going ahead on the D2C side of it aggressive pricing from the traditional competitors?

[Sahil Barua, executive]

I'm not sure about traditional, so I'm going to assume that you're speaking of perhaps DHL and DTDC and so on?

[Mukesh Saraf, analyst]

Yes, Blue Dart kind of...

[Sahil Barua, executive]

Yes. Sure. So look, at the end of the day, the fact that somebody is offering you a lower price if it's not backed up by a high-quality, reliable service, the lower price is not enough. I mean no customer is going to say that I'm happy to take more delays or I'm happy to have to work with higher returns as long as you give you a lower price. Ultimately, e-commerce companies want things delivered reliably to customers where what we index on and what we've already indexed on is the quality of our service and the quality of our delivery and also the reliability of our delivery and the ability to absorb the inherent volatility that e-commerce contains at this point in time.

So we have not actually faced any particular headwinds from any traditional or other competitors in terms of pricing. The other thing also to remember, and we've mentioned this before, we're very confident about the fact that we are the lowest cost operator in this space. Not only are we the lowest cost operator in this space over a period of time, as we've discovered cost efficiencies in our network, we have passed those benefits on to our customers with time.

And as a consequence of that, we are very confident that the pricing that we provide to customers where we are able to make the margins that would be flat, most of our competitors, if they are pricing at those labels or below that, we'll be unable to make money. So even if they are sort of pricing below us, the fact of the matter is they won't be able to sustain it for very long if at all.

[Mukesh Saraf, analyst]

And just quickly on the PTL business. I mean we have obviously recorded very strong growth while the industry doesn't seem to be growing that strong on PTL. So could you kind of give some sense on how we have expanded, say, probably pin codes or collection centers, any data you can provide on where we were, say, last year first quarter to now in terms of reach or like asset collection centers?

[Sahil Barua, executive]

Apaar/Vivek, can you just go to that slide, please? The slide with all the statistics on the network, please? Yes. So as you can see, Mukesh, there's been no change in the network. We still service it more or less exactly the same number of pin codes. And we service through the same...

[Mukesh Saraf, analyst]

No. So I meant specifically for the PTL. So in this, obviously, there will be certain pin codes that you'll only be servicing?

[Sahil Barua, executive]

No, no, no. So Mukesh, that's what -- that's why our network is unique because it's integrated across our PTL and our Express Services. So serviceability for PTL is exactly the same as serviceability for Express.

[Mukesh Saraf, analyst]

It's not just a mid-mile that you're able to integrate, you are able to integrate even the last mile, it's what you say?

[Sahil Barua, executive]

Correct. Now the difference is if you look at freight service centers, which we have 120. The highest density PTL locations are serviced by a format called a freight service center which is uniquely designed to handle freight and uniquely designed to handle heavy products. Now imagine that there's a location which is servicing -- I am making this up but, let's say, 15 tons of load a day. 15 tons of load will go to a freight service station.

But that doesn't mean that we won't have a customer who, for example, wants to send 300 kilos of flour to a location that is not viable to service by our freight service station. In that case, what happens is this will get directed into our express delivery network. There is 3,567 of these centers. So in fact, the express delivery network is a humongous advantage when it comes to serviceability for us versus traditional industry, which seems to think of a lot of these pin codes as ODA pin codes.

[Operator]

We'll take the next question from Manjeet Buaria.

[Manjeet Buaria, analyst]

Sahil in the past, you have mentioned that even if we sort of disintermediate our first, mid and last mile, we'll actually still be the lowest cost player in the industry. So in that case shouldn't it be vendors on value as well because we should be the most competitive to bid on that platform. I just wanted your thoughts on that.

[Sahil Barua, executive]

But why would we do that? I mean we already provide a fully integrated service that the principle in question can utilize at an extremely competitive cost with an extremely high service level. The incentive for us to unbundle ourselves to participate in our platform is essentially zero. The better answer is actually for the platform in question to outsource the volumes to us entirely. So I don't anticipate that we will unbundle ourselves to participate [ in this ].

The second thing to bear in mind is that the quality of service of a disintermediated network is, by definition, lower than the quality of an integrated network. Because I have the ability today to make decisions all the way from the moment the parcel is picked up to the moment the parcel is delivered through a single stream, which is Delhivery. If you have to pass on packages continuously across multiple different partners, there's an inherent loss of service and inherent loss of traceability and inherent overcapacity that has to be built at every node.

So there is a reason why logistics companies across the world historically for 100 years they've provided integrated services. It is because there's a certain power that comes from the integration. So I don't believe that -- we don't believe it's in the best interest of our customers for us to disintermediate ourselves.

[Manjeet Buaria, analyst]

Very clear. And the second question, Sahil, whatever Meesho is trying to do, my understanding and I could be wrong, is but the other 3PL players are even more reliant on Meesho than we ever have been. So just your thoughts on industry consolidation because they should be getting hit way worse than we are. So from an industry perspective, do you have some thoughts on when do we see probably the less competitive capacity to go out of the system?

[Sahil Barua, executive]

Sure. I've spoken about this before. I think, as I mentioned, for any customer of ours, the reality is that the mechanism through which you manage your risk across multiple carriers is not by launching a carrier yourself, but essentially by working closely with the existing carriers in this situation, whether you call it self-logistics or not effectively another carrier has been launched into what already was a fairly sort of shallow pool. It first affected who had extremely high dependence on the platform in question and potentially had pricing that also is most likely to be unviable.

I think consolidation is inevitable in this situation. The question, of course, that I can't answer is how long people will continue to fund businesses in this state. Also the reason why this is necessary, I believe, is that over a period of time, India will produce integrated logistics companies. For a variety of reasons that I mentioned in the past, the economics of running parcel only networks that are nonintegrated are significantly worse than the economics of running integrated networks.

The cost curve doesn't flatten -- I am sorry, the cost curve flattens out too quickly when you're running a parcel only network. And so I do believe that it's important for industry consolidation to happen. As to the time lines, I think to be perfectly honest, your guess is as good as mine. But on a lighter note today is as good a day as any other.

[Operator]

We'll take the next question from [ Achal Lohade ].

[Unknown Analyst]

My question was on supply chain. If you could talk about where are we in the journey? What kind of growth can we see here? What kind of customer addition we have seen? And in terms of the offering compared to the other supply chain players where do we stand in terms of the offering? Have we covered most of it or we have significant element to catch up?

[Sahil Barua, executive]

Oddly on the Supply Chain Services business, as I mentioned, a lot of the new starts that we have, which were to come in both from traditional sort of the B2B industry, there are specific verticals, for example, in the auto and auto spare parts world and the wires and cables world, the FMEG world, we had contracts that were starting up. Those are obviously scaled up in this quarter.

And obviously, for our customers in the consumer durable space, this is a seasonally high quarter. So a combination of those factors obviously has delivered solid growth to us. In terms of our pipeline, I think the pipeline is extremely robust both from sort of the B2B world, where we continue to make inroads into our focus categories, which are, as I mentioned, again, auto, auto spare parts, industrial goods, wires and cables, consumer durables, FMCG and FMEG.

But outside of that, the other area that's seeing significant growth for us is integrated fulfillment for e-commerce, where we have the ability to provide effectively, as I mentioned before, sort of think of it as a white label prime service which is a combination of variable cost fulfillment coupled with extremely high-speed delivery in city, and we've seen demand for this sort of rise quite significantly in the last quarter.

In terms of the breadth of the offering itself, I think supply chain services, whether we offer it or somebody else offer it, it is fundamentally a combination of warehousing and transportation operations spread across primary logistics and secondary distribution or delivery to customers. And we provide a comprehensive site. Typically, traditional players have not done the B2C element of this. They're largely focused on the B2B element of it. So the differentiation of the increased breadth of our service is the ability to net B2C to B2B both.

The other, of course, a differentiator between our service and traditional services is our ability to support multiple tenants in the same fulfillment centers, which essentially, like I mentioned on the dark stores side earlier, allows us to enable companies to variabilize their operating cost of the supply chain quite a lot as opposed to sort of making heavy investments in capacity, and that's sort of a pretty big differentiator.

Apart from which from a technology standpoint, we have the ability to enable companies to virtualize their inventory across all of the fulfillment centers that we serve for them. And in order management that essentially enables them to direct the right set of orders to the right fulfillment centers and therefore, achieve an optimal mix of inventory and the lowest cost of transportation. So it's a fairly comprehensive set of services that encompasses not just the physical aspects of storage and transportation, but also all of the information systems that are crucial to supply chain decisions.

And then, of course, there's the added advantage of visibility, the tracking and the reporting services that we provide. Traditional players also provide contract logistics, which is the one area I should point out, we do not provide. So we do not do sort of a service where we're simply sort of providing manpower effectively while the systems and the management are being run by the principal themselves. So that's what we don't do.

[Aditya Suresh, analyst]

Sahil, before we conclude the call, this is Aditya from Macquarie. Maybe I'll just ask you two questions, please. The first is on the Part Truckload business. You've been constructive on the formalization opportunity. You spoke about impressive growth rates here. Maybe if you can just run through your thesis here again?

[Sahil Barua, executive]

Aditya, on for Part Truckload, there are sort of two or three big things to point out. The industry, obviously, while exact statistics are a little hard to come by because of sort of the express, non-express PTL, FTL is hazy, so our view is that the total spend on PTL is -- on express PTL is easily over INR 10 billion.

If you look at the market, India is hugely atypical market, which is it's highly fragmented, whereas when you look at Part Truckload markets around the rest of the world, they tend to be highly consolidated markets. And the reason is very simple, which that similar to Express Part Truckload is essentially -- it's a network business of consolidation and deconsolidation, which lends itself to see large economies of scale, and there's obviously a technology and engineering intensive business.

So our view is that the market will formalize in India. But in the U.S., for example, the top five players, I suspect will be -- I don't have the absolute latest numbers, but will be, let's say 65%, 70% of the Part Truckload market. I think India will go down that path because scale leads to efficiency, we should use this cost for everyone. And the second thing, obviously, in India, there's a big shift from unorganized players towards organized players, largely because quality of service improve with large integrated national networks. So that's broadly our thesis.

We don't anticipate any challenges in terms of our ability to grow into this market, as you can see, even in what has been a seasonally extremely weak quarter overall for the Part Truckload industry, we've had fairly solid growth this quarter, which reflects both the quality of the service and our ability to generate and service demand. For us, the basic challenge that I've spoken about is to slowly increase sort of our top of the funnel activities, both to make more and more customers across the country sort of aware of the fact that delivery provides BTL services. I mean one of the interesting things is despite us being one of the largest PTL players in the country, most people still think of us as an express denominated business, whereas the reality is we are an extremely large freight network.

And the second, obviously, as I mentioned, is to increase our direct sales capabilities and direct sales outreach into Tier 1, Tier 2 and Tier 3 markets. As an express only player, our business development was really in the beginning largely focused on places like Delhi, Bombay and Bangalore. But increasingly, as our sales teams have spread, as an example in the PTL industry, cities like Chennai, cities like Vapi are fairly large markets, and we're expanding our presence into all of those with physical sales and logically, along with physical sales, we are also building a network of resellers and third-party partners who can sign up with us.

And similar to the C2C franchise business that I spoke about can sign up and essentially direct freight loads into Delhivery, where it's feasible for us to have a direct business development presence.

[Aditya Suresh, analyst]

And the related question, Sahil, was that on freight costs and the fact that running this integrated network. So freight costs have declined about 180, 190 basis points year-on-year, it's down again about 50 basis points sequentially as measured against revenue. As you scale your PTL business, we'll see how the Express Parcel business shapes up. But should we expect further scale benefits here as you kind of ramp Part Truckload up?

[Sahil Barua, executive]

Yes, absolutely. As I mentioned before Aditya the reality is that our PTL business at the moment, very happy that it's now profitable at service EBITDA level and profitability continues to improve quarter-on-quarter. But as I mentioned, our PTL network is designed to handle significantly more tonnage than we continue to handle at this stage. And so as volumes go up through this network utilization of the network will continue to rise, whether it's the freight service stations, which are designed to handle higher volumes or the hubs, which are designed to handle higher volumes.

And also trucking aggregate trucking utilization will increase. our trailer network will densify a little further from this point on. And the other thing is as we are bringing in more PTL business into the network, the densification of loads or essentially the higher weights that we are carrying themselves have a positive impact on overall costs. And interestingly, Aditya, this has a positive network effect on the express business as well. It's one of the things that enables us to drive in a fairly competitive advantage on express costs as well. So both the networks feed into each other.

[Aditya Suresh, analyst]

Fantastic. And are you able to kind of provide any guidance here whether you had a service EBITDA margin level or any of the margin lines?

[Sahil Barua, executive]

On Express, you've seen the margins we are stable at this 18% kind of mark and as I mentioned before, one of the things that Delhivery is committed to doing is to bringing down the overall cost of logistics for the industry. And as our margins expand, I think wherever we have customers where we believe that offering them a lower price is going to lead to higher volumes for them and consequently for us. We will continue to offer that pricing benefit to them, and we're very happy in the short to medium term with these customers to remain in that 18% to 20% kind of margin range on Express. The PTL business, as I mentioned, is exactly the same as the Express business, but merely with larger boxes. And so we do expect that the PTL business will deliver margins which are in line with the Express business. And potentially, as our cost advantages are discovered, we'll see how it goes potentially even higher and that's the trajectory we're shooting for.

[Operator]

Fantastic. Sir, I don't see any other questions in queue. If you have any closing remarks, please?

[Sahil Barua, executive]

Great. Well, nothing that hasn't already been said. I think quarter 1 is historically always one those difficult quarters for logistics companies. And I think we're very satisfied with the overall performance we've had for quarter 1. There's been pretty significant revenue growth even in what has been a seasonally difficult quarter for the rest of the industry and also, obviously, the impact of rains and the impact of the elections, so very satisfactory quarter.

And from a profitability standpoint, as we've mentioned, our focus has always been to improve the unit economics of our businesses. Broad summary is that Express continues to grow stably. Margins remain stable in that 18% range. The PTL business continues to grow very fast, profitability trend continues. We're also seeing significant sort of improvement in the supply chain services business. We have a robust pipeline from here all, and we anticipate solid growth in SCS business as well. So overall, a good start to the year. And going into the peak season, I think we're feeling quite confident and well set for the rest of the year. So thank you.

[Operator]

Thank you all the best.

[Sahil Barua, executive]

Thank you, Macquarie for hosting us. Thank you all for joining.