IPOs are typically priced at 5.5 times Mcap to Revenue and annualised metrics, and the Delhivery IPO may not be the most attractive IPO. However, there are some key points to keep in mind when evaluating this issue. In this piece, I will compare the IPO with the OFS and discuss how the Price to Sales multiple compared to the logistics player.
IPO vs OFS
Listed companies are increasingly looking for a better deal in the stock market, and IPOs have become one of them. Delhivery’s IPO will raise up to 90 per cent of the funds it needs to grow. The company is now readying an IPO, which will be open for subscription between May 11 and 13 and priced at Rs 462-487 per share. The IPO will offer fresh equity worth Rs 4,000 crore, with the remaining Rs 1,235 crore going to existing shareholders.
The company has announced plans to use the proceeds of its IPO to expand its logistics network. The IPO proceeds will also be used for acquisitions. Its express parcel delivery network covers over 17,500 PIN codes and accounts for 90.6% of all postal codes in India. Despite its size, the company is still making massive losses. This may be a good time to buy the shares in Delhivery.
Price to sales multiple of 9.68X
The issue size has been reduced to Rs. 5235 crore from its original size of Rs. 7460 crore, reflecting the company’s aggressive growth strategy and high-grade infrastructure. The company also plans to expand its network of automated sort centers and invest in portable automation. As a result, investors can expect a price to sales multiple of 9.68X for its IPO. This is still a steep discount to the company’s FY20 earnings, but it is attractive compared to other large-cap IPOs this year.
As the company continues to invest in expanding its reach, its strategic plans include leveraging its rapid growth and operational scale to expand its customer base, build a larger technology platform, and introduce practices from other customers. Additionally, the company plans to expand its customer base by acquiring Spoton, and will launch new services and capabilities, including intracity distribution, temperature-controlled logistics, and traditional non-express PTL freight.
Ant and SoftBank cut stakes in the IPO
A red herring prospectus has revealed that the IPO would include a fresh issuance of shares worth Rs 4,000 crore, while the offer for sale portion is reduced to Rs 1,235 crore from Rs 2,460 crore. SoftBank and global private equity investor Carlyle will sell stakes worth Rs 365 crore and Rs 750 crore respectively. The IPO price band for Delhivery’s shares has been competitively priced, and the company expects the IPO to whip up the demand for the company’s shares.
While SoftBank has made some of the best investments in the past two years, its recent performance has been a concern. Its stake in ride-hailing giant Didi, which recently underwent a data-security probe, is trading 32% below its June IPO. Another recently listed Chinese company, Full Truck Alliance, has also come under scrutiny from government regulators, with its shares down 26% from their IPO in June.
IPO vs a logistics player
If you are considering investing in a logistics company, there are several things to keep in mind before you decide to go public. The first thing to remember is that logistics companies have seen a surge of investor interest in recent years. E-commerce and other factors have helped to increase the market share of organized players. Additionally, analysts have maintained that the current valuations reflect reduced cost pressures due to the goods and services tax.
IPOs are star-marked events on the stock market calendar. They create hype and publicize products and services. One logistics company that has been on the market for several years, Delhivery, recently received approval from SEBI to go public with an IPO. The company is valued at $6 billion and will issue about 5,000 crore in new shares and a 2460 crore offer for sale. Delhivery has more than 21000 clients and plans to raise as much as 5,000 crore through the IPO.