IPO-bound Ecom Express processes 82% of tier-2 shipments but faces growth challenges: InCred Equities
InCred Equities estimated that Ecom Express handled 430 million of shipments in FY2024 accounting for 58% of Delhivery's shipments, while its sales were 51% of Delhivery's express sales
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IPO-bound logistics firm Ecom Express is facing challenges due to low operating leverage and high client concentration, despite attracting the bulk of businesses from tier-2 cities.
According to the InCred Equities report, the company processed 82 percent of the shipments from tier-2 cities, higher than the industry average of 62% in FY2024.
The third-party logistic platform had a 27 percent market share by shipment in FY24, second only to its rival Delhivery. The company's express shipment CAGR was 33.5% between FY2020-2024, similar to Delhivery's 34.7%, while shipment growth in FY2024 remained muted.
InCred Equities estimated that Ecom Express handled 430 million of shipments in FY2024 accounting for 58% of Delhivery's shipments, while its sales were 51% of Delhivery's express sales.
However, Ecom Express's sales CAGR was lower than the industry average, and its EBT loss increased twofold in FY2022-24, unlike Delhivery, which narrowed its losses by 21%.
Besides, Delhivery's operating leverage scale is three times higher than Ecom Express as the firm benefits from synergies in the part truckload segment.
Ecom Express's top five clients accounted for 75% of its FY24 sales, compared to 34% for Delhivery. Interestingly, Ecom Express has 6,384 clients, one-fifth of Delhivery's client base.
The Gurugram-based firm's contract manpower cost rose at 39 percent CAGR (FY22-24), higher than its volume CAGR (18%) due to the increasing proportion of gig workers.
As per the DRHP of Ecom Express, Ecom Express had 70,000 employees as of March 2024, with only 22 percent being full-time employees.
India's online penetration was 6.5 percent in FY24 as compared to 31 percent in China and 16 percent in the US.
InCred Equities report highlighted that Flipkart and Amazon (loss-making over FY15-23) have a market share of 70 percent in Indian e-commerce. However, the market share of third-party logistics dipped to 44% in FY24, partly due to the start of captive logistics by Meesho - Express. InCred Equities has expected a dip in the market share of 3PL firms in FY25 as Meesho insources more logistics.
"We believe this is a risk for 3PL (even beyond FY25) if e-commerce players start/ increase captive logistics," the research and trading services firm argued. Notably, Delhivery Express cargo dipped 1% year-on-year in the last six months.
Ecom Express plans to raise Rs 2,600 crore via its IPO. Backed by Warburg Pincus, Partners Group, and British International Investment, the IPO is a combination of fresh issuance of shares worth Rs 1,284.5 crore and an offer-for-sale (OFS) of up to Rs 1,315.5 crore by promoters and investors.
