Ecom Express' Acquisition To Boost Profitability, Poses Lower Risks: Delhivery

Logistics major Delhivery has said that will help it improve scale and shore up profitability.

In an exchange filing, Delhivery said that the deal poses “significantly” lower risks compared to its acquisition of partial truck load (PTL) logistics platform SpotOn Logistics in 2021.

This clarification follows Delhivery last week announcing that it would acquire a 99.4% stake in Ecom Express for INR 1,407 Cr in an all-cash deal. Described as one of the biggest consolidation moves in the B2C third party surface (3PL) logistics segment, the deal had triggered some concerns about its impact on the listed company’s books.

However, citing its rationale for the “lower risks”, the listed logistics major said that no new technology integrations will have to be “created or changed” as part of the deal as there is a near total overlap (nearly 100% in customer count and 95% in terms of revenue) between Delhivery and Ecom Express.

“Both companies have serviced these customers over several years and all customer-facing business processes… are equivalent or similar in all key respects. Customers are also deeply integrated with Delhivery systems already and will be able to seamlessly route erstwhile Ecom Express volumes into Delhivery’s network,” Delhivery said.

It added that it can easily accommodate Ecom Express’ parcel volumes and total tonnage carried due to the relatively smaller scale of the acquired startup.

Giving numbers, Delhivery said that Ecom Express’ volumes are nearly 40% of its express parcel volumes and less than 20% of its total tonnage carried, while SpotOn’s PTL volumes were twice the size of Delhivery’s PTL business at the time of acquisition.

Delhivery also noted that “no new technology development or deployment” will be required to retain a “significant portion” of Ecom Express’ network infrastructure, and the acquisition will involve “very limited integration complexity”.

With regards to challenges related to subsuming Ecom Express’ employees, Delhivery said that its rate of attrition provides “sufficient opportunity” to absorb “qualified operating staff” from the acquired company.

The Scale & Profitability Factor

Assuaging investor fears, the logistics unicorn said that the acquisition will help the company improve its overall profitability, scale up its operations and reduce costs.

Explaining the rationale behind the consolidation move, Delhivery said that incremental express parcel volumes flowing into the company following integration with Ecom Express will boost its bottom line.

“The incremental volumes that we expect to accrue will further improve utilisation of our network assets and improve overall profitability upon completion of integration. We expect revenue from the acquisition will be retained at Delhivery’s high incremental gross margins. Profitability will also be expanded through reduction of overlapping network assets and central overhead costs,” it said.

As per the filing, Ecom Express’ operating revenue stood at just INR 1,912 Cr in the first nine months of FY25 as against INR 2,609 Cr in the entire FY24. Ecom Express reported a net loss of INR 398 Cr during the nine-month period as compared to INR 215 Cr loss reported in FY24.

The Sahil Barua-led company said that of the total loss, INR 215 Cr was on account of “non-cash loss on fair valuation of financial liability carried at fair value” due to the accounting treatment of compulsorily convertible preference shares (CCPS) in accordance with Ind AS 109 (Indian accounting standards). Adjusted for this, Ecom Express’ net loss stood at INR 184 Cr in 9M FY25.

However, Delhivery shrugged off any major impact on its bottom line due to the mounting losses of Ecom Express. The company expects “retained revenue” post completion of the deal to generate “substantially higher” incremental EBITDA margins compared to Ecom Express’ standalone service EBITDA margins due to Delhivery’s “more efficient cost structure”.

“Further, network footprint and corporate overheads will be rationalised to a level appropriate for the combined business. We therefore expect incremental profits from the retained revenue to substantially offset the temporary costs of network and overheads rationalisation,” added Delhivery.

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