Delhivery Limited (DELHIVERY.NS) Earnings Call Transcript & Summary

Good evening, everyone. Welcome to Q3 FY '26 Earnings Call of Delhivery Limited, hosted by Ambit Capital. 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. To discuss the results, I'm pleased to welcome Mr. Sahil Barua, MD and Chief Executive Officer; Mr. Vivek Pabari, Chief Financial Officer; Ms. Vani Venkatesh, Chief Business Officer; Mr. Varun Bakshi, SVP and Head of Supply Chain Solutions; Mr. Naman Jain, Head, Investor Relations and Corporate Development. [Operator Instructions]. Now I invite Mr. Sahil Barua to take us through the key highlights of the quarter, post which we'll open up for Q&A. Thank you, and over to you, Sahil.

Thank you, Yash. Thank you, Ambit, for hosting us this evening. Welcome to all of you and thank you for joining us on a Saturday evening. Before we begin, as you're aware, we've been in the process of reconstituting our Board of Directors for the last year. And I'd like to place on record on behalf of Delhivery's management team, Board, and shareholders, our deepest gratitude to Mr. Deepak Kapoor and Mr. Saugata Gupta, who will be stepping away from their roles on the Board of Delhivery. Deepak joined us as Chairman of our Board in 2018 and has been on the Delhivery Board for 8 years. And his contribution through these 8 years has been instrumental towards shaping our governance, setting in place internal financial controls, and also taking the company public. And Saugata's experience with running a public company has been instrumental to building Delhivery from a start-up to an institution, which is where we are today. So thank you to both of them. Moving on to quarter 3. I'll start with a quick summary and then hand over to my colleague, Vani. Quarter 3 has been an excellent quarter overall. The quick summary of it is that we saw record volumes across our transportation businesses and significant improvements in profitability. Overall revenue from services grew 18% Y-o-Y to nearly INR 2,800 crores. Quarter 3 profits, which Vani will talk about in more detail, came in at nearly as much as we did in the entire financial year '25. And I'm very pleased to note that in the 9 months of fiscal '26 so far, we've reached a milestone of crossing over INR 1,000 crores in service EBITDA profits. So Vani will begin with the presentation. And then once we're done, I'll come back and take questions. Vani, over to you.

Thank you, Sahil. Thank you, Yash. I appreciate all of you joining us on a Saturday evening. I'll start off with the highlights in Q3. Overall, it's been a very satisfying strong quarter, all around profitable growth. If you look at the business highlights, it's been a record festive season with about 295 million Express Parcel shipments, driven by strong share of wallet gains across clients. PTL has also crossed 500,000 metric tonnes, another record. Consistent sales efforts and service levels have been seamless this time. So that's been fantastic for PTL. SCS, we've got some key contract wins in SCS. SCS, as you know, has a long sales cycle, and we are seeing traction on that. Now we are very happy about it. We are starting off with one of India's largest engineering companies and a flagship luxury home and lifestyle brand in SCS. So overall, all our core businesses are doing very, very well. Coming to margin, again, all round improvement. As Sahil just mentioned, it has culminated in INR 1,000 crores service EBITDA. It's the first ever for us. The adjusted EBITDA came in at about INR 147 crores, been a very efficient quarter. We've clocked in this much EBITDA all of last year. And in this quarter alone, we've gotten about INR 147 crores. PAT profitability is at INR 110 crores before Ecom integration cost, and even after the integration cost, it's about INR 40 crores. So overall, our focus on margin and the improvement initiatives have started to yield very good results for us. On new launches, we are very much on track. Delhivery Direct, we've extended our on-demand intracity service to 2 new cities, Mumbai and Hyderabad. And we've launched an air economy product, which our SME customers can benefit from, which is Delhivery International. So some of our growth engines are also starting to give benefits. Tech, data and engineering side, we've scaled our SaaS footprint with TransportOne. We've launched Freight Index One, which is an industry first for us. And we've successfully completed our first field mission with autonomous VTOL drones. We performed a 12-kilometer test medical delivery in UP in about 12 minutes. So all in all, great top line. We are very happy with the margins. New launches are on track. Tech, data product firing well. If you come down one page. Yes. Translating all of this to numbers, volumes, both the transportation businesses, which is Express and PTL, have clocked their highest ever. So 295 million Express Parcel shipments and 507,000 metric tonnes of PTL, both are their highest ever. Express has a whopping 42%, 43% almost Y-o-Y growth. PTL has also a handsome 23% Y-o-Y growth. So both of these have really fired in volumes. All of this translates to a INR 2,798 crores revenue for us. And this is about 18% higher than the same time last year. It's about 10% higher -- it's about 10% of sequential growth. And this growth has come in with significant margin expansion. So we are happy about the profitable growth. Service EBITDA is at about INR 421 crores. EBITDA has come in at INR 233 crores -- INR 234 crores, that's about 8.4%. That's more than 2x of what we got at the same quarter last year. PAT is at INR 110 crores or 3.8%, again, more than 4x of what we got in the same quarter last year. So all the numbers that you look on the left-hand side, the Q3 numbers, all of those are the highest ever. So both in terms of volumes, revenue, margin, it's been a very, very good quarter for us. If you look to the right side, as we add all of these numbers in the first half results, it comes to a 748 million Express Parcel shipments in 9 months to date and about 1,442,000 metric tonnes of PTL freight. All of this adding to more than INR 7,600 crores of service revenue, and the highest ever service EBITDA we've seen of INR 1,053 crores and a PAT of about INR 260 crores. So again, a good quarter and culminating into a good 9 months. Yes. Moving to the operational metrics. This is a quick snapshot of the operational metrics. From a coverage point of view, we continue to cover the length and breadth of India's 18,838 PIN codes. We serve the world through our existing partnerships, as also our new air economy product that we are launching. We have about more than 51,000 customers. We've crossed the 50,000 mark here, all of whom we serve through our 21.9 million square feet of infrastructure, our 123 hubs and gateways that keep ticking around the clock to keep our shipments moving, our 49 automated sort centers and 74 sort centers (sic) [ sorters ]. We serve our freight business through our 140 freight service centers. We have 163 processing centers now. And we've been serving our Express business through 4,730 centers between owned and partner-led centers. Again, all of this massive operation run with a 71,000 strong team with 67,000 partner agents and 21,000 strong fleet. So that's on the operations metrics. Yes. Just double-clicking on to the revenue and the performance by business line. We start with Express. So overall revenue from services is about INR 2,798 crores. That's 18% Y-o-Y growth and a 10% sequential quarter growth. 2/3 of this is from Express, as you can see, and that's about INR 1,839 crores of revenue from Express. It's been a very good quarter, 24% Y-o-Y growth and 14% sequential revenue growth on Express. In volume terms, that translates to a 43% Y-o-Y volume growth and a 20% sequential quarter growth. The great part of Express is while October has been the festive peak, we've actually sustained the high volumes well beyond. So November and December have also been very good months for us. And all segments have fired. So D2C, SME channel partners, across the board, all segments have fired extremely well, and they've fired in a very profitable way. So Express seems going good and is very, very well set for the coming quarters. Coming to PTL, again, 21% of revenue from PTL. Revenue growth is at 25% Y-o-Y. Volume growth is at 23% Y-o-Y. So revenue growth surpasses volume growth, which is indicative of the continued yield improvement efforts of the team. The PTL team has also invested in sales force and continues to invest in sales personnel to reach cities that we were not directly reaching earlier. So in the last quarter as well as in the upcoming quarter, we see a fair amount of potential in terms of continuing the growth trajectory and the profitable growth trajectory on PTL. I'll move to Supply Chain Services next. Revenue has been maintained at INR 170 crores -- INR 171 crores in Supply Chain Services. As we had shared last time, relative to last year, we took an informed call to exit some of the unprofitable portfolios here. So we exited a mother warehouse for quick commerce. There was some seasonality in electronics and durables and so on, right? But as we enter this quarter, the good news is that with all the profit actions in place, we now have new mandates as well that we are starting to implement this quarter, and we have a very healthy pipeline to convert. So SCS business also is looking good. Margins are set, and we have a healthy pipeline and a clear plan of action to get the top line firing as well, just like the other businesses in the past. Coming to Cross Border Services revenue, we clocked in about INR 33 crores of Cross Border Services revenue. If you can come down. Yes. On the profitability side, I'll call your attention to the highlighted box. Total service EBITDA is at about INR 421 crores, which is a 15.1% -- which translates to about 15.1%. In transportation, we have maintained that we want to get to a 16% to 18% goal. You'll see that in Express, we've gotten to 18.1%. And in PTL, we have expanded our margins to about 11%. So all in all, the transport margin overall crossed the 16% mark at about 16.4%. This is a good 3.6% over the same time last year. Again, if you look at SCS, it's been a massive improvement. Same time last year was 2.1%, and we've moved it to about 13% now. So a bunch of disciplined measures, foundation very well set to scale now. When we pull all of this together, it's INR 1,000 crores service EBITDA for the first time. Express is comfortably at the range of 16% to 18%. PTL is in good double digits and diligently marching to the 16-plus percent goal that we spoke about. Overall, corporate overheads came in at about 9.1%, and we invested INR 20 crores in our new businesses, notably Delhi, Hyderabad for our intracity services, and expansion of Rapid stores. And all of this led to an adjusted EBITDA of about INR 14 crores (sic) [ INR 147 crores ] this quarter. As I mentioned earlier, this is almost the same amount as all of last year in just this quarter. And PAT comes in at about INR 110 crores. So all in all, it's been a very, very profitable growth quarter. If we move down one page. Yes. So in summary, we've prudently focused on profitable growth. PAT and PAT expansion speaks the story. If you look at the trend for the last 3 years from about negative 3% -- negative 2.9% 2 years back, we've moved to 1.7%. And now in the 9 months ending, we are at about 3.3%. All in all, it's been a quarter of several firsts for us. We are very satisfied with the volumes, with the revenue, with the margins on transportation. Well set for profitable growth in SCS. We are very well geared for the future, both in terms of the plans that we have on sales force expansion and the other investments to grow, both the core businesses as well as new businesses. We're disciplined in investments in new businesses and comfortable on working capital and cash reserves. So with this, we are looking forward to growing on this momentum and taking this forward. So this is a brief, at least, overview we wanted to share before opening it up for any questions. Sahil, if you would like to round up, you could.

Yes. So thanks, Vani. So as summarized, everyone, I think a very satisfactory quarter overall, I think ahead of even our expectations to some extent, largely driven by sort of extremely high-quality service throughout this period. As you've seen in quarters in the past, in the peak period, sometimes when the express volumes and the heavy volumes are significantly higher, we have previously tended to have somewhat shaky service levels on the Part Truckload freight side. So a lot of work has gone in from a technology and product standpoint, which we've spoken about in the shareholder letter as well, sort of revamping our systems, bringing in more automation. And a lot of this is really cutting-edge technology for logistics globally and certainly in India. And I think what you're seeing is really the results of that. The second, I've been speaking about on multiple analyst calls, of course, is also the expansion of our sales teams to new geographies. And I think what we're seeing in terms of growth in PTL specifically is also sort of early signs of that strategy paying off. And the sales team is still being built up. And I think we'll sort of be fully built out by the time we're hitting quarter 1 of the next financial year. So a very exciting quarter, great base for quarter 4. Bear in mind, quarter 4 is the high watermark quarter usually for PTL. So it's another busy quarter for us, and it's an excellent base for fiscal '27. So very proud of our results, very proud of the team, and happy to take questions.

[Operator Instructions] The first question is from the line of Sachin. Sachin, if you could just also speak about your organization name.

This is Sachin Salgaonkar from Bank of America. Sahil and team, congrats on a great set of numbers. I have 3 questions. First question is on your margins for Express Parcel. Clearly, it's already at 18% and your outlook suggests volumes are expected to increase. There's a lot of investment going into technology. And I understand the total transport margin guidance of 16% to 18%. But specifically from an Express point of view, any color you could go in terms of how high this margin could go from a steady state point of view? And let me know if I should say the other 2 questions simultaneously?

Yes, yes, Sachin, why don't you go ahead with all 3 and then I'll answer them together.

Got it. Second question is on the pricing power in the Express industry. Clearly, Ecom Express consolidation is done. We do understand some of the smaller players appear to be struggling into the market. So I do want to understand where we are from a pricing point of view? And should we continue to see an yield increase in the market going ahead? And a related question is also the outlook for 2026. Yesterday, an e-commerce entity in their con call did mention that their outsourcing mix is changing. Clearly, you guys are one of the bigger beneficiaries out of it. So I would love to understand how that adds into the industry outlook for 3PL industry and specifically for your market share going ahead. And last question is, how long should we see investments into new services like Rapid Commerce? And any number you could give in terms of the kind of investments you guys are looking to make out here?

Thanks, Sachin. Let me try and get to all of them one by one. In terms of margins for the Express business, I think we're at about, whatever, 18.2%, 18.3% for quarter 3. Now this has come without actually any significant or meaningful increases in yield. So a lot of this has just come from, as volumes have gone up, sort of higher utilization of the network. I know somebody on this call will eventually ask me what the utilization of the network is, and I'll just preempt that by saying that I couldn't put an exact number to it. But it is overall higher utilization, higher productivity across all facilities, higher haulage on the trucks, which has expanded margins. And the second thing, of course, is a lot of cost discipline from our operations teams, which have been driven by a lot of the improvements we've made on the technology side. To give you one example of how technology makes a difference, one of the features that one of our senior product leaders had released earlier before we hit quarter 3 was something that seems quite innocuous. It's as simple as sort of figuring out how to auto dock trucks at all of our facilities. It's a complex mathematical problem, but the impact it has is something like 20 minutes to 30 minutes per truck that shows up. But when you're transacting thousands of trucks across the entire network, you're saving several man hours of time. And a lot of this has sort of translated into real savings on the ground. So how far can margins expand? I've said this before, the network has stably operated up to 22%, 23% margins as well in the past. Beyond that, of course, we can expand margins, but that usually comes at the cost of some service quality in some locations. So I don't see any reason, as long as pricing remains where it is, for us to not be able to raise margins. Now that brings me to the second question that you asked, which was around pricing power in Express. I have stated this before, pricing power comes from 2 different sort of -- there are 2 different streams of thought here. One is the ability to take pricing up. The second is the ability to make money at a price where no other competitors can make money at all. And we believe that it's the second pricing power that is more important than the first, especially in industries which are commodity industries, which we are. Logistics is a commodity industry. Unlike where you choose which phone you want to buy, I don't really want any of our clients to sort of think about differentiated logistics. They need to move things from point A to point B. They need the highest reliability, they need the widest reach, they need the fastest speed, and they need the lowest cost. And this is one of the few industries in the world where it is possible to deliver all of these. So we are the pricing pressure in this market, and we will continue to maintain pricing pressure on competition in this market, as we've said in the past. We will retain yields where they are. Specific yield mix in any given quarter, of course, is dependent on the weights that we haul and the distances that we haul. Typically, in the peak period, prior to the Ecom Express acquisition, we would haul a larger proportion of heavy weights through the network during the festive period. This year, obviously, because of the consolidation, we've hauled a larger proportion of smaller parcels, which is why our yield may optically look a little compressed compared to where it's been, but there's no fundamental difference in pricing. As we've mentioned before, our competitors do not make money at this price. All of our competitors -- there are 2 ways to look at this. One, of course, is that we acquired Ecom. The other private and public competitors in this space have no incremental margins. And that itself, I think, is testament to the competitive position that we've established. So from a pricing standpoint, I think Delhivery will continue to maintain a strategic course as we have. Will you see deep cuts in yield? No, not necessarily. One of the areas that we're, of course, working on, and it is a complex problem again, is thinking about dynamic pricing or yield index pricing. When we have the ability to do -- sorry, utilization index pricing. When we do utilization index pricing, we have the ability to provide discounts to customers on very specific lanes while actually improving profitability of Delhivery. And that is going to be one of the major areas that we will pick up. So it could be utilization based on route. It could be utilization based on time. It could be utilization based on weight or client category. This is a hugely complex technical problem, of course, but one that we fully anticipate we will be able to solve over the next couple of quarters. In terms of outlook for 2026, I think, yes, you're right. I think it's good to see that e-commerce companies have gone public in India. I think what that does is it sort of brings a certain transparency to strategic choices. As we mentioned in the past, Delhivery's cost structure is not achievable by stand-alone parcel networks. And so we are not just likely to be the largest beneficiary whenever there is a sort of cost pressure, we are, in fact, the only beneficiary, because as you've seen in the past, volumes from large e-commerce marketplaces, when outsourced to third-party players, who are parcel-only players, actually don't improve their profitability meaningfully at all. In fact, in the case of Ecom Express, prior to our acquisition, the more volumes they did, the more money they burned. And that continues to be the case for several private players already, and incremental margins are really what you need to look at in logistics. So I think our outlook remains as confident as it was. We've always said that our cost structure is what gives us the unique advantage. Our model is what gives us the unique advantage. It's perhaps taken 3 years for that to really sort of for the penny to drop and for people to be able to see those numbers in action, but that's effectively what you're seeing. And so as long as cost pressures continue, I'm fairly confident that we will continue to gain share. As you can see, our margins remain unaffected by these cost pressures. And do bear in mind that this is in the face of inflating costs. The labor costs inflate fairly reliably, real estate costs inflate fairly reliably. And despite that, Delhivery's margins have actually been increasing, whereas you can't say the same for either captive players of any form, doesn't matter what model they use, or third-party stand-alone players. Your last question in terms of how long will investments in Rapid Commerce and other areas continue. It's quite interesting actually. Rapid Commerce at the start, when we did the planning and I came on a call and I said, look, I think this is probably a INR 100 crore kind of opportunity for Delhivery, and it's a good capability for us to have. Now what's interesting is the B2B opportunity in Rapid Commerce actually also turns out to be quite significant. It's a pleasant surprise. And so the build-out -- while we haven't accelerated the build-out of our dark store or dark fulfillment network yet, I think you'll see some expansion over quarter 1 and quarter 2 of the next fiscal. But the important thing to note and what we track internally is we look at the gross margins of this business. In quarter 3, which was the previous quarter, actually, this business was also a gross margin positive business. So again, like all of our other businesses and the kinds of businesses we like running, these are utilization index businesses. And so as our volumes grow, once again, this business sort of just accretes cash to the Delhivery bottom line. So some of the investments in Rapid Commerce, for example, will depend on how fast our business development scales up. It's a team that was quite small until we began Q3, but now we have more aggressive designs in the space. And what we're also doing, again, a fairly complicated technical challenge, is really figuring out how to merge our non-Express and Express networks in the sense, our non-Rapid and Rapid networks, I'm sorry. And when we have the ability to do that, we have the ability to sort of have this fuzzy serviceability, which allows us to improve the profitability of Rapid Commerce by moving regular orders through the Rapid network and taking advantage of the underutilization of the Rapid network. So you will sort of start seeing that also play out by, let's call it, Q1 of this financial year. So at least as far as Rapid goes, I think the investments are neither very large, nor will they continue for a very long period of time. It's a business that accretes money. It's the same clients. It's a faster service, and it will get integrated with a larger network over time. Delhivery Direct is an area, of course, where we continue to invest in the intracity on-demand space. When looked at as a combination of intercity and intracity, of course, this business makes money. But on the intracity on-demand space, we continue to invest. My sense is that at this stage, our annual investments will be in the range of INR 60 crores, INR 70 crores a year or so. But that really depends on what our expansion plan is going to be. So far, we are in Delhi, in Ahmedabad and in Bangalore, where we've launched, and we've recently launched Hyderabad and Mumbai as well. So our plan is to obviously expand this. One is obviously for our own users internally, but be also for external SME customers and then to integrate this with Delhivery One. So I think that will take us at least the next financial year. In terms of our other businesses, just to be clear, Delhivery International is a profitable business from the get-go. So there's no investments required in that business. It's an add-on service to the Express service we already provided through FedEx and Aramex. So net-net, in terms of new business, I think it's safe to assume somewhere in a sort of INR 60 crores to INR 80 crores kind of range that we will invest next fiscal.

Thanks, Sahil, for the detailed answers. Just one follow-up. This is on Express margins, where you did mention that 24%, 25% was the peak margin in the past. But this was before we saw acquisition of Ecom Express. Now even the volumes are incrementally increasing. So should we see the crossing of that peak at some point and room to increase beyond 24%, 25% as well?

See, as long as we can continue to drive up utilization, what you're saying is, of course, accurate. And when I said that 24%, 25% is where I have seen the network stably perform, that's the important indicator. Just to be clear, in 15 years, I've seen the network also perform at 30% plus EBITDA margins at various points. But those have usually come at the cost of some instability in service levels somewhere. A rapid surge of utilization in some part of the network may be profitable in the short term. We might make a quarter of very heavy profits out of it. But usually, in my experience, we've ended up paying a service cost as a result. Given the fact that our network is much larger than it was in those days, our operational capabilities are significantly more sophisticated, and the competitive environment, of course, is increasingly becoming more benign, it's a very difficult question for me to answer. Could the network operate stably at sort of margins above that range? Yes, it could actually. But at what point exactly will service taxes sort of come in? It's hard to predict, because it depends on where the volume comes in specifically and how demand shifts around. So let's just play it by the ear. Can the network perform at 22%, 23%, 24% margins? Absolutely. We don't intend to drop price. Utilization should go up. Dynamic pricing may bring our yields down optically, but our profitability will remain intact. Outside of that, can we go beyond that? I think let's see. We are already, as Express networks go, a fairly profitable Express network. So maybe we'll see a couple of quarters down the line.

[Operator Instructions] The next question is from the line of Sachin Dixit. Sachin, please could you also mention the organization name?

So my first question is on some of the sustainability of numbers delivered this quarter, right? Because one of your largest customers did allude that they had some issues with their own captive logistics arm and they expect recovery there. So do you see some of the retracing of the outperformance we saw this quarter? I mean, obviously, we expected good numbers, but some extra outperformance you would have seen, could we see recovering some replacing of that happening?

Do you have more questions? Do you want to ask all of them first?

Sure. My second question is on Ecom integration side, right? Obviously, we did highlight INR 300 crores of potential cost on that side. It looks like now we are going to wind up at roughly half of that number. If you can also highlight where all were you positively surprised in terms of seeing a lower integration cost. And the third question is on Supply Chain Services. Now this business, we have seen you onboarding clients. Some of them, they are marquee clients as well. But if you look at growth for this business, it's mostly flat even if you look on Q3 FY '24 numbers. So do we finally see that the bottoming out has happened and we have a sustainable path to growth in this business? I do understand EBITDA margins have been improved. But on the top line side as well, if you can give some strength to whether the sustenance is there?

Absolutely. Great questions. Let me start with sustainability of numbers of this quarter. Look, I have said this many, many, many times over the years. Our margins are sustainable. They do not depend on variations in volume, right? You can go back from the day that we went public to today, we have maintained that Express margins will remain in the 16% to 18% range. We've been at the lower end of that range when we were doing 57 million packages a month. We are at the upper end of that range or beyond it a little bit when we are doing nearly 100 million shipments a month. And yields, of course, over a 3-year period have compressed a little bit. So I think what we are always concerned about, and this is linked also to the third question on SCS. And my primary focus has always been, and we have stated this, has been that we have to generate profits. At the end of the day, discounting-led growth in logistics or low-cost growth in logistics is suicidal, as you've seen by the industry getting consolidated towards us and by other players struggling in terms of whether it's incremental margins or being able to raise capital. So I think that's the more important question around sustainability, if you ask me. Now let's come to the matter of growth. As I've mentioned in the past, Delhivery has advantages in its cost structure and its model. It is not in a tactical decision to price lower for any given quarter. Now individual companies may change their outsourcing strategies in any given quarter, right? Sometimes they do more, sometimes they do less. But if you look at the long arc of time, and here, I mean, long arc as even maybe 3 years, we've had captives declaring publicly that they are profitable only to post INR 2,000 crore losses when they file their results. So there's no truth to any of this. And so the question is merely how long will people continue to sustain losses in the logistics entities. And I don't believe that there's an infinite lifetime for that. The good news is, for us, there is an infinite lifetime for a profitable logistics company, which we are. And so I'm not very worried about things from a sustainability standpoint. The other question worth asking actually is not to Delhivery, but to the e-commerce companies themselves, right, which is if your own logistics failed to perform at the time when you needed it the most, why do you run it? You might as well work with third-party partners who have been stable. So I actually think Delhivery's responsibility is to provide a large stable base for e-commerce companies of all shapes and sizes to ship reliably pan-India at the lowest possible cost with the highest possible speed. Now outside of that, if they should choose to run experiments on their own in specific geographies or for specific kinds of products, that's up to them. But are our sort of advantages, is our cost structure, is our margin structure sustainable? 100%. And it doesn't depend on any individual changes made by any player. The other thing to remember is that compared to everybody else in this industry, we have an extraordinarily low client concentration of any kind. Most logistics companies in India will have sort of a 60%, 70% concentration towards a single customer. We, first of all, by virtue of not having just an Express business, are hugely protected. And within our Express business, actually, we have a very sort of spread out set of volumes. And so our ability to grow, our ability to perform as a business is not dependent on any customer's individual strategy. Now coming to the second question on Ecom integration, you asked me a question, where are we positively surprised? I'd have to say when you estimated INR 300 crores and are likely to end up at INR 150 crores, you've been positively surprised all along the way. So I suppose we are positively surprised by everything. We did say, when we started out, that we took a conservative view, which is our approach. Fortunately, we have been able to shut down facilities earlier than originally thought. We have been able to also, because we sustained volumes, be able to integrate some facilities into our network more quickly than we had originally anticipated. And as a consequence of that, the integration costs have been much lower. I think we learned from our Spoton integration, which wasn't something that went to plan. And this time, we had a very, very sharp integration plan and a full integration team working on this, and they've done a fantastic job and reflects that. So it's not a question of being a positive surprise alone. I think it is down to extremely disciplined execution. To your third question on Supply Chain Services, you're right. While we have been onboarding clients, growth has been flat. Again, as I've mentioned, there's no point driving fast if you don't know where you're going. And in our case, the clear steer to the team was that earnings over growth. And as you can see, we've gone from 2.1% margin to 13% in this quarter, and that was something that was strategically very important to us. There's no point us sort of accelerating warehousing space and accelerating client onboarding while not making enough money to justify being in the business. I think where we are today is, again, with a far more secure base than we had at the same time last year. There are some industries that we've learned perhaps the hard way that we shouldn't be participants in. Quick commerce obviously being one of them. Doing mother warehousing for quick commerce, unfortunately, for logistics companies, seems to be a loss-making proposition. It took us some time to exit that. And there's some natural seasonality as well. But to your question, is this sort of the bottom of the SCS business from a growth standpoint? I'd like to think so. As you heard from Vani earlier, we have a couple of big mandates coming up. One obviously is a pan-India redesign for a large engineering goods company. And the other one is a supply chain redesign for a leading home and fashion player. Outside of this, we continue to gain share with existing accounts as well in auto, consumer durables, consumer electronics. And interestingly, one of the big growth drivers here has also been e-commerce, where, again, our sort of big network advantages and ability to cut down cost have been moving -- more and more e-commerce companies are moving fulfillment towards us as well. So yes, I do think this is perhaps sort of the low end of Supply Chain Services from a growth standpoint. But again, more importantly, I think the focus has to be on the margins.

The next question is from the line of Vijit Jain. Vijit, could you please unmute yourself and also mention the organization name?

Congratulations on a great set of numbers. This is Vijit Jain from Citi. My first question is...

Vijit, sorry, I lost you just as you started your question. If you don't mind, could you please repeat?

Yes, sure. So what I was saying is, you said in the letter that you're currently in a high-growth operating environment, and you've kind of raised guidance on CapEx in the near term. So my question is, is the comment on CapEx also towards mid-mile infrastructure, specifically in e-commerce? And my second question is related to the PTL business, where there's a comment inside, which says you are integrating capacity management with key clients, and there are other comments on capability improvements there. Should we expect meaningful wallet share gains with existing customers here as well? And in general, how would you split your revenue growth in PTL between new and existing customers?

Sure. Great questions again. Thanks. Just before I answer both questions, the integrating of capacity management actually was on the e-commerce side, not so much on the PTL side, because e-commerce is where you have significantly higher volatility in daily demand. So that's sort of where the technical systems play a fairly large role. But anyway, coming back to questions. High-growth operating environment, we haven't raised our guidance on CapEx in the sense that we expect to spend more as a percentage of revenue than we have in the past, just to be very clear. We continue to expect that CapEx will decline down to the sort of 4% to 4.3%, 4.4% of revenue over the not so very sort of medium term. Perhaps maybe even 7, 8 quarters out, 10 quarters out, we should be starting to hit those kinds of ranges. Always saying that there may be certain CapEx investments that depending on volume growth, where we had anticipated that we might do them, for example, in Q2 of fiscal '27, we might end up doing some in Q1 and some from Q1 may get pulled in a little bit into Q4. Just to be clear, this will not be related largely to, for example, sortation equipment CapEx and so on. There will be obviously some sorters which will need to be added. Those -- fortunately, were part of the acquisition of Ecom Express. So there's a certain amount of OpEx involved with just moving them to a new location and installing them, but it's not very significant. And in the mid-mile facilities, e-commerce growth doesn't really compute in terms of tonnage handled. So if you think about it, let's say, we handle, call it, 3 million shipments a day, and average shipment weight is whatever, let's call it, 700 grams. So effectively, you're hauling 21,000 tonnes of freight -- sorry, 2,100 tonnes of freight, which in the large scheme of things is not very significant. When you look at it, we're doing, call it, 6,000 tonnes of freight on PTL. So really, the mid-mile CapEx gets determined by PTL as opposed to anything to do with e-commerce. There will be some minor sortation CapEx here and there, but nothing very much large overall. In terms of PTL and heavies, there will be some amount of CapEx. Again, this will not be in terms of sort of the infrastructure that you're thinking. So this is not necessarily in terms of sort of more large-scale mega gateways. We already have 5 mega gateways, which are live. There may be a sixth in Noida, which we're evaluating, but it's not anytime sort of soon at this point in time. So nothing to sort of guide towards on that front. Where it will be is there are 2 big changes happening sort of that we are seeing from a mid-mile standpoint. One is our truck form factors are changing again. Two things are happening. One is the fuel form is changing. So we have had experiments with LNG, and that's done very well for us. So in fact, sort of in our network, what we've seen is that it tends to be at par or slightly cheaper than diesel vehicles. So we continue to induct LNG vehicles into our fleet, especially as we're retiring some of the older vehicles. And the second thing is that we will continue to add tractor trains in certain parts of our network, which essentially allow us to haul an additional container compared to the single container that we're hauling. We're live on a couple of routes already, and we continue to get approval from time to time. So it's largely vehicle-related CapEx that will come in. But again, it's not significant enough that it will alter our CapEx trajectory as a percentage of revenue at all. Now in terms of the PTL business, there's significant capability improvements here overall. One is, see, the PTL business has benefited hugely from the capacity management being integrated with e-commerce customers. I'm going to be a little geeky over here. It's a very complex network problem to be able to identify what the capacity of a node is, what expected load patterns of that node are going to look like over sort of a short period of time. And then basis what you're seeing getting manifested in real time, diverting that load into different parts of the network. So it's quite interesting in a way where today, you might deliver a refrigerator from location A and because you anticipate that 3 days from now, location A is not going to have the capacity that it had today, you kind of divert that load away to an underutilized node, which is node B. Now where this becomes complex is optimizing the network in real time is very hard. But the advantage of this when you optimize loads away from sort of heavily utilized locations is that PTL service levels go up as a consequence and become more reliable. And so that's the biggest capability that we're building. It's a nontrivially sort of -- it's a very, very difficult problem to solve and one that we're starting to see huge benefits of. So there integrating -- there are certain investments we're making on the agentic side, for example, to improve performance and document management, which is important in PTL. The second is around appointment management and delivery on time. These are all pretty new capabilities that we're also experimenting with. The early results are good. So PTL volumes, therefore, I think, will improve as service quality gets better. Now just quickly in terms of new client growth versus existing client growth, see, we've grown revenue terms is, whatever, 25% a year and volume, I think, is whatever, 23% a year or something like that. Now that kind of growth only comes when you have very significant growth, both from a new client standpoint and from an existing client standpoint. See, the economy is not growing at 23%. So obviously, our existing client base has not grown -- not contributed all of the 23%. My sense is share of wallet gain plus sort of, to some extent, organic client growth would have contributed a little over half of the total growth that we've seen, and the rest of it would have come from new client acquisition. But we anticipate that new client acquisition actually is going to accelerate in this quarter and beyond because our sales teams that we have been building for the last 4, 5 months are now on the ground, fully trained, and we are now in, I think, whatever, about 60-odd locations compared to maybe 6 big locations that we were in 2 quarters ago.

Sahil, just a follow-up on that capacity management comment with e-commerce. So does that mean that you have better predictability into loads that you're going to see much better than what you would have seen before, and that informs what you said about the PTL business?

It does not improve forecasting. It improves our ability to deal with volatility in forecast. So just to be clear, it does not, in any way, enable us to forecast what our volumes will look like. Long ago, we gave up the cost of trying to forecast any better. In any case, forecast accuracy in all industries is terrible. Logistics is really no different. And in fact, if anything, by sheer law of numbers, the problem is, the smaller the node, the higher the volatility, right? The volatility at a DC level is higher than the volatility at a city level is sort of higher than the volatility at a state level is higher than the volatility at a national level. I can pretty confidently tell you that we'll do, I'm making this up, whatever, 95 million shipments in January. But if you ask me to tell you exactly how many shipments I was going to do in Sector 44, that would be a significantly harder problem. So forecast accuracy, obviously is not something that improves with this system. What improves is the ability of the systems in real time, which is the hard part, to understand where our capacities are and to divert loads away or to block loads from coming in at bad times. So that's sort of what the system is doing.

[Operator Instructions] Next question is from the line of Gaurav Rateria. Gaurav, please unmute yourself and mention the organization name.

I have a couple of questions. I'll list them down all. The first is on Express Parcel. Would it be possible to segregate your volume growth into organic, inorganic? And within organic, how much is because of market growth and how much is because of market share gain? My second question is on the bridge for PTL margins from 11% to 16% to 18% range. I know you have been talking about network utilization and incremental gross margins of 30%, 40%. But if you look at incremental gross margins have now been coming off from very, very high levels in FY '24 to FY '25 and FY '25 to 9 months of fiscal '26. So just trying to list down the levers that will take you there with network reaching closer towards optimal utilization. And the last question is at what adjusted EBITDA margins you turn into free cash flow from operations at the consolidated company level in the medium term?

Thanks, Gaurav. In terms of parcel growth segregating between organic and inorganic, et cetera, to be perfectly honest, this is something we stopped bothering about in Q3. It's safe enough to assume that at this point in time, all of that growth in some senses is organic to Delhivery. It is -- sure, did we gain share at the instant that we acquired Ecom Express? The answer is yes, but the hard part is in retaining it, because organic -- in some senses, inorganic volumes acquired can also deplete, which hasn't happened. So I don't think it's very material to think of it as either organic or inorganic. I think the significant fact is that our volumes are up 43% a year. Now has the market grown 43%? Certainly not. The e-commerce market, I think now there's a listed e-commerce company, plus there are other players sort of whose numbers are out there. Best estimates of that e-commerce volume growth, GMV growth, obviously may have been slightly higher if Flipkart sold more mobile phones, but other than that, broadly speaking, volume growth would have been in that 15%, 18% kind of range. And so when we've grown volumes 43%, if 15%, 18% has come from organic growth in the market, all the rest of it has obviously come from share gain. Over a period of time, as long as Delhivery continues to grow at sort of 15%, 18% plus in terms of volumes in e-commerce, it's safe to assume that a large portion of that is coming from share of wallet gains. And as I mentioned in the previous 3 questions or 2, 3 questions, whatever it is, the share of wallet gains are because fundamentally, Delhivery has the highest quality network, which gets to 18,800-odd PIN codes at the lowest possible cost. And more specifically is the most reliable when things are spiky and difficult, which in India increasingly is all of the time. So not very instructive, and we don't particularly bother about whether growth is organic or inorganic or anything else. In terms of the bridge of PTL margins from 11% to 16%, we'll continue to go up as utilization of the network goes up. Service centers sort of will fill up, trucks will fill up increasingly and margins will continue to go up. The second piece, of course, is that we do continue to reprice certain accounts, as we've mentioned since we started the analyst calls. In PTL, you review your contracts every year, you look at which lanes, which contracts don't make you enough money and sort of renegotiate that pricing. There's a certain cadence to the renegotiations. Some contracts come up once a year, some contracts come up once a quarter. So I think yield will also continue to get better. And by yield getting better, I don't necessarily mean that yield will take up and to the right kind of trajectory where it keeps going up. What I mean is that it will keep getting more profitable. Because as we may also, for example, do more reverse lanes or we may do more short-haul lanes, where the yield will optically look lower but will be more profitable. So we're a long way from the point where PTL margins will not improve with increasing loads. I think that will continue to happen. And you should see that. Some of the sort of -- the expansion in the margins in Q3 in PTL actually could have been even larger. But the reality is that in this quarter, as we mentioned, we did carry extra infrastructure because it was an e-commerce peak. I mentioned this in the call that we've done at the end of Q2 that by virtue of the GST sort of shock, the e-commerce peak got pushed out a little bit, but we had built capacity a little earlier than originally planned. So in some senses, PTL margin could actually have been slightly higher in this quarter if it had been time to perfection, which it wasn't. But nothing changes. As we've said in the past, more volumes equal to more profitability. We track the gross margins and the EBITDA margins at a client level, and that's how we make our decisions on pricing. In terms of adjusted EBITDA and when we turn FCF positive, I think Vivek, do you want to comment, you would be best placed to answer this question.

Yes. Gaurav, at about 6%, we will be free cash flow breakeven. The math is simple. The CapEx will be in the 5% zip code area. So maybe 4.5% is what we have said in the steady state. Our working capital is already down to 15 days. So that would roughly mean that about 1% of working capital for a 15% to 20% kind of a revenue growth rate. So that 5% plus 1% is broadly the 6 percentage, and at 6% adjusted EBITDA, we will be free cash flow breakeven. That's the pretax free cash flow is what I'm referring to.

Next question is from the line of Krupashankar. Krupashankar, could you please unmute yourself?

So my first question would be on the PTL part. Just wanted to get a sense that while I do appreciate that you're adding a lot of sales team to drive volume growth, I just wanted to get a sense if -- are you adding any ancillary further services in the PTL network which can further improve the network utilization and employment? Basically, in CY '26, are you looking to add more services to the existing network? And the second question would be on the Supply Chain piece. Now historically we have observed that the Supply Chain segment has a cap on the margins. And typically, because of the nature of contracts, you were not able to go beyond that threshold. So is there any number like what you mentioned on the transportation business of 16% to 18% EBITDA. Is there such a number for Supply Chain business as well?

Sorry, before I answer question number one, when you say that historically, you have seen that Supply Chain Services contracts have a cap, are you referring to Delhivery? Or is this experience based on some other company?

No, no. Based on industry.

Who do you define as the industry?

The existing contract logistics companies in the ecosystem, we have typically seen that their reported EBITDA margins range between 5% to 10%. And typically, it is quite difficult to break that threshold given the fact that the mix of transportation is also quite high and the contracts are negotiated quite stringently. So something on those lines probably was what I was referring to.

Understood. Well, I think you have a definitional problem. There's a reason we don't call our business contract logistics, and we call it Supply Chain Services, because they're fundamentally different. We are not a manpower outsourcing vendor where a client comes to us and says, here's a piece of land that we have a warehouse on. We'll put our supervisor here and our warehouse management system and our racks. You provide us the manpower who does the picking and packing operation, and we'll pay you 4% for that. So we're not in that business overall. I know there are other players who are in that business. And obviously, some of them come from legacy operations, where they have a parent which required that service. So whether it's Mahindra Logistics or TVS or whoever it is, ultimately, remember that their supply chain services businesses come out of having a captive which provides a large amount of business to them and has no incentive to pay them full margins. Delhivery does not provide that service in any part to any client. We only take on mandates where it is a fundamental supply chain redesign. And in fact, it has now proven and we've shown this to our clients that by not doing contract logistics and by allowing us to determine the infrastructure and transportation mix requirements that they have for their specific problems, we save them money compared to a contract logistics player. We service the auto industry, including players who, for example, have previously been serviced by the 4% margin players that you're talking about and Delhivery has come out cheaper and more profitable. So our approach to SCS is going to be no different. I don't know what the cap on SCS margins is. We have accounts which, for example, deliver 30% plus EBITDA as well. Obviously, our dog accounts were things like quick commerce where we lost money rather than making any. And we occasionally run into clients where service quality is not a priority for them and they're effectively looking for a contract logistics solution in the guise of a supply chain services discussion, largely because they want to seem like they're having a forward-looking discussion while sort of sticking to the past. But we don't participate in those kinds of RFQs any longer, and that's sort of what we've been shedding. So is there a cap? No, I don't think so. Will margins continue to improve? We're already at 13%. We are nowhere near the full potential margins of this business. What will they be exactly? I'm not really sure. It depends on how much inefficiency we can strip out of various people's supply chains. So far, the benefits that we have been bringing to our customers are the benefits of scale, obviously. There are the inherent benefits of our warehouse management system, which allow us to run more productive under-the-roof operations. The integration with our transportation network, which allows us to deliver a faster service and also to take certain advantage of underutilization in some parts of our network, specifically with respect to time. But outside of that, we haven't even gotten to the more exciting parts of delivering value to industry, which is really, for example, cutting inventory holding. Only some of our most long-term customers have started engaging on that discussion, which is where we start saving them not just operating expenses, but also taking inventory off their balance sheets and saying you can run a much leaner operation. So we will get there. But please don't confuse us with the contract logistics business. It's sort of apples and oranges. Now coming back to your question on PTL, are we adding ancillary services to the PTL network? I'll just start and maybe -- my colleague, Varun, is on the call, maybe he can step in for a couple of minutes. But I think, first of all, just the pure Express PTL business, one of the things that's happening in the industry is clients want as fast as possible part truck freight delivery services as they can get. There's no customer who says, yes, I'd like slower freight. And so there's a general move towards Express. The second is there's a general move towards organized players where -- and we've discussed this in the past, for a variety of different reasons related to quality, related to the ability to serve pan-India, the ability to serve on a directly served network and so on. And there are really, strictly speaking, only 2 very large high-quality PTL players in India, which is Safexpress and Delhivery. And so in some senses, we don't really need to offer ancillary services to continue to grow or to improve network utilization. That said, I think I know what direction you're going in, which is are we also going to do non-express part truck, which does continue to exist as a service at this point in time. There are certain services, for example, like hub-to-hub delivery, which VRL does a fairly large amount of as opposed to sort of door-to-door. Are we going to do some of those? Maybe Varun is the right person to come in and sort of briefly talk about this.

Thanks, Sahil. Yes. So a couple of things. So first of all, so the additional services could, as Sahil said, it could be hub-to-hub. It could actually be air PTL as well. There is something which goes by air PTL, which do we have capability? Yes, to start immediately. But will we be starting? Yes, sometime in the near future. Again, yes. So that's a short answer. Hub to hub, again, we know the industry, we know the customers. Can we start? We can start almost immediately. But again, there is so much to do with the current setup, with the current set of people in the Express PTL industry where we are seeing a lot of traction going to every customer we approach. That we will take this up, but at the right time. So in near future, yes, but probably not -- it's not tomorrow morning.

Next question is from the line of Aditya Bhartia. Aditya, could you please unmute yourself?

I think, Yash, you want to move on to whoever's next.

Yes. We'll move on to the next participant. The next question is from the line of Alok Deora. Alok, could you please unmute yourself?