Jefferies downgrades Delhivery stock on insourcing concerns

Jefferies downgraded Delhivery to Underperform with a reduced price target of INR315 from INR500, citing concerns over key customer insourcing, particularly from Meesho, despite projecting a 57% FY25-28E EBITDA CAGR. The firm's analysis indicates a potential 14% downside based on a 20x June 2027 estimated EV/EBITDA, although upside risks exist related to Meesho outsourcing and e-commerce growth, potentially leading to a bull case price target of INR405.

Analysis

Jefferies has significantly altered its outlook on Delhivery Ltd., downgrading the stock to Underperform from Buy and slashing its price target to INR315.00 from INR500.00. This revision is primarily driven by concerns regarding potential insourcing by a key customer, believed to be Meesho, which could negatively impact Delhivery's Express Parcel segment. Notably, Jefferies observes that this key customer's revenue share remained flat year-over-year, implying a 10% growth for this account compared to the broader Express Parcel segment's 5% growth, suggesting the full impact of insourcing has not yet been realized. Despite these concerns, Jefferies projects a robust 57% compound annual growth rate (CAGR) for Delhivery's EBITDA between FY25 and FY28, supported by anticipated sales CAGRs of 12% in Express Parcel, 19% in Part Truckload, and 14% in Supply Chain services, with respective target margins of 18%, 12%, and 8% by FY28. The new price target, implying a 14% potential downside in the base case, is derived from a 20x multiple on June 2027 estimated EV/EBITDA. Upside risks to this bearish outlook include a potential reversal of insourcing by Meesho or accelerated e-commerce growth, leading to a bull case target of INR405, while InvestingPro's AI analysis also suggests Delhivery may not be among the most undervalued stocks currently. The 'strongly negative' sentiment score of -0.75 underscores the market's reaction to these concerns.

Key Decisions for Investors

• Investors should exercise caution following Jefferies' downgrade of Delhivery to 'Underperform' and the significant price target reduction to INR315, which reflects a potential 14% downside primarily due to risks of key customer insourcing.
• Closely monitor developments related to client insourcing, particularly from Meesho, as this is the central thesis for the downgrade, even though Jefferies still projects a substantial 57% FY25-28E EBITDA CAGR.
• Consider the revised valuation based on a 20x June 2027 estimated EV/EBITDA and the external AI signal from InvestingPro suggesting Delhivery may not be a top undervalued pick, while also noting potential upside from changes in customer strategy or e-commerce acceleration.