Delhivery Limited (DELHIVERY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '23 Earnings Conference Call of Delhivery Limited hosted by Morgan Stanley India Company Private Limited. Before we start, we 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. Kindly note that this call is meant for investors and analysts only. If there are any representatives from the media, they are requested to drop off this call immediately. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gaurav Rateria from Morgan Stanley. Thank you, and over to you, sir.

Thank you, Nirav. Hello, everyone. This is Gaurav Rateria from Morgan Stanley. Thank you all for joining us for Delhivery's earnings call to discuss fiscal '23 first quarter results. To discuss the results, I am pleased to welcome Mr. Sahil Barua, the CEO and MD; Mr. Sandeep Barasia, Chief Business Officer; Mr. Amit Agarwal, CFO; and Mr. [ Varun Bakshi ], the Head of Investor Relations. I thank management team for providing us this opportunity to host this call. I now invite Mr. Sahil Barua to take us through key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Sahil.

Thank you, Gaurav, and thank you all for joining. A very good evening to you, and welcome to our second earnings call. Just a quick check before I go ahead that I'm completely audible.

Yes, sir. You are audible.

Thank you. So the agenda for this call is to walk through our earnings presentation in about 20 minutes, and then we will open up for questions. Apar, if you can move to the next slide. For those of you who are joining for the first time, a brief background on Delhivery. The objective behind Delhivery is to build the operating system for commerce in India, which means we essentially provide the infrastructure, the services and the technologies that allow buyers and sellers to transact with each other in the real world. These buyers and sellers may be businesses transacting with businesses, businesses transacting with consumers or consumers transacting with consumers both within the borders of India or from India to abroad or abroad to India. Moving to the next slide, Apar. A quick snapshot of our performance in quarter 1 fiscal '23. We continue to be India's largest integrated logistics platform. In quarter 1 of financial '23, we registered INR 1,746 crores of revenue from services, which represents a 30% growth over our revenues for the same quarter in the previous financial year. Quarter 1 financial '23 adjusted EBITDA margin stands at negative 12.5%. We delivered 152 million parcels in our express business in quarter 1 financial '23 and have delivered close to about 1.6 billion packages since our inception in 2011. In quarter 1 financial '23, in our part truckload trade business, we delivered close to 240,000 tonnes of freight and have shipped close to 2.5 million tonnes of freight since financial '19. We run one of the largest networks in the country and operate close to about 18.9 million square feet of logistics infrastructure across the country. This includes automated sortation centers, trucking terminals, air terminals and fulfillment centers across India. We have over 29,000 active customers who work with us across multiple business lines, which include express parcel shipping, part truckload shipping, full truckload shipping, supply chain services and warehousing and cross-border logistics. 54% of our revenue comes from customers who use 2 or more of our services, and we cover 18,435 pin codes across the length and breadth of the country as defined by the Indian Post. A quick snapshot of our key operating metrics for quarter 1 fiscal '23, which is the column on the extreme right. Between the end of financial '22, since our last earnings call, and the end of quarter 1 financial '23, we've expanded our pin code reach from 18,074 pin codes to 18,435 pin codes. Our overall customer base has expanded from 23,600 customers to over 29,000 customers as of the end of quarter 1 financial '23. As discussed earlier, we've expanded our overall logistics infrastructure from 18.15 million square feet to 18.9 million square feet as of the end of quarter 1 financial '23. We continue to have the largest number of gateways, automated sort centers and processing centers among logistics companies in India. We operate 96 gateways across the country, 21 automated sortation centers, 189 processing centers, nearly 3,000 express delivery centers, about 240 freight service centers. And we have an overall team size of close to about 60,000 people across the country. Moving to the next slide, key milestones for quarter 1 financial '23. The first is one that we had referred to in our communication with shareholders earlier in this quarter, which is the completion of the operational integration of Spoton. To refresh everyone's memory, Spoton was a part truckload freight business that we acquired earlier in financial '22. The integration was planned in 3 phases, which I will talk about in more detail through the call, which began in quarter 3 of the last financial year. And the final phase of the integration was scheduled for quarter 1 of this year. We've expanded total infrastructure to nearly 18.9 million square feet and commissioned and taken live our automated mega facility at Tauru Bilaspur in Haryana, which is now fully operational. We also launched a guaranteed same-day delivery service aimed at direct-to-consumer e-commerce customers across the country. We've also launched our consumer-to-consumer shipping application, the Delhivery app, for consumers to book and track consignments in real time. Our client roster has grown in quarter 1 as well. We've onboarded over 500 new customers in our Express Parcel business, and our Supply Chain Services business continues to see robust demand for our integrated services. We've onboarded 2 of the world's largest auto manufacturers, a major multi-brand retailer, a global electronics major and one of India's largest paint companies in our Supply Chain Services business. And on the technology front, we've been awarded 2 U.S. patents for our data sciences work for Addfix and UAID, which are our proprietary systems. So just a quick snapshot of quarter 1. I'll begin with a quick update on the Spoton integration. The integration of Delhivery and Spoton, as I pointed out, was carried out in 3 phases. It required us to assimilate over 2,000 members of the Spoton team, about 5,500 customers who were serviced by Spoton prior to the integration and infrastructure of about 2.5 million square feet, which was spread across 350 operating facilities. And all of this was to be brought into the combined Delhivery and Spoton network. As part of Phase 1, which was in quarter 3 of the last financial year and completed successfully in December 2021, our first aim was to integrate clients and team, restructuring customer contracts for all of the 5,500 Spoton customers, ensuring parity with Delhivery, and integrating the Spoton team of over 2,000 people into our organization. As part of Phase 2, which was completed during quarter 4 of the last financial year in March 2022, we completed the integration of client-facing and operations systems, which was a full integration of our technology system, essentially setting us up for moving all operations to a single integrated network in Phase 3. Phase 3 was begun in quarter 1, which was the final integration of operations, which included both the infrastructure and the network operations of both companies. The decision to complete the integration in quarter 1 was based on certain factors in our business. First of all, on business cyclicality, where quarter 1 volumes in a financial year are typically lower than quarter 2 to quarter 4. The second was in line with our annual CapEx cycle. Delhivery typically commissions new infrastructure, which goes live in quarter 2 and quarter 3 of the financial year. And so integrating prior to the commissioning of new infrastructure would allow us to bed in this infrastructure with the combined volumes. The third factor was avoiding monsoon and making sure that we were essentially not disrupted by the rains across different parts of the country. And the fourth was the avoidance of the e-commerce peak season, which typically hits us in quarter 3 of the financial year. In quarter 1, while we started the operational integration, the overall process of integrating the infrastructure and the network took longer than we originally expected. This was down to a couple of reasons. First was higher-than-forecasted volumes, which created bottlenecks at some of our key facilities at the automated gateways in both Tauru and Bhiwandi, but also at some of the facilities where both Delhivery and Spoton had not established sufficient infrastructure to service incremental customer demand, which included locations like Chennai and Pune. As a consequence, we made the choice to pause volumes from a selection of key accounts and some accounts who had either specific business processes or specific requirements for freight handling until operational parameters were conclusively stabilized. Operational service levels have returned to preintegration levels. We returned to preintegration levels within a few weeks of beginning the integration and have remained stable since. Moving to the next slide. The impact of the integration, which I will talk about in more detail as we go through the financials, first of all, has arisen from service stability. Service stabilization took us 4 weeks longer than originally expected at the start of the quarter, largely due to the automated gateways at Gurgaon and Bhiwandi having a temporary effect on service precision. They were higher-than-normal service error-related claims from customers that had to be settled during quarter 1, which have caused higher revenue provision during the quarter. And the temporary period of disruption for our pickup and delivery business partners due to a change in the serviceability has been moved from the Spoton network to the combined Delhivery and Spoton network. The proactive reduction in volumes, along with the reduction from select clients, also affected us overall in quarter 1 financial '23. And we made the decision to maintain capacity across our 3 key resources, which are staffing, fleet and infrastructure, to ensure service stability through the period. And as a consequence, we see slightly higher unit costs, which were elevated during quarter 1 financial '23 compared to quarter 4 of financial '22. In addition, there are onetime transition costs of the integration, which we expect will normalize over financial '23. For instance, due to commercial or contractual reasons, we have had to run a certain amount of redundant infrastructure and certain software licenses under certain administrative costs from the Spoton entity that has continued in quarter 1. We also paid a onetime compensation to key business partners and channel partners in quarter 1 to support them through our integration period, outside of which there have been substantial technology and development costs both in quarter 4 financial '22 and quarter 1 financial '23 as we've integrated Delhivery and Spoton systems. The overall impact is what you see in the slides to follow. As you can see on the left-hand side, overall revenue between quarter 1 financial '22 and quarter 1 financial '23 has grown by about 30% year-on-year from INR 1,344 crores to about INR 1,746 crores. The composition of the business has changed slightly owing to the integration effect of the PTL business. PTL, which was 23% of the business in quarter 1 financial '22, is 15% of the business in quarter 1 financial '23. Express Parcel revenues have grown by 34% from INR 785 crores in quarter 1 financial '22 to INR 1,051 crores as of quarter 1 financial '23. This is despite seasonality in the express business, where quarter 1 of a financial year is typically depressed and the exit of Shopee from the Indian market in quarter 4 of financial '22. Express Parcel shipments grew strongly through this period. We have seen 50% growth year-on-year with Q1 financial '22 volumes of 102 million growing to 152 million for quarter 1 of financial '23. Part truckload freight revenues have degrown by 16% between quarter 1 financial '22 and quarter 1 financial '23 owing to the reasons I spoke about earlier, where we proactively shut down some client volumes for a period of time, and some clients chose to proactively cut volumes as well through this period. Overall freight tonnage degrew from 279,000 tonnes of freight to about 234,000 (sic) [ 239,000 ] tonnes of freight in quarter 1 of financial '23. Moving to the next slide. Our other business lines, which are the truckload business, the Supply Chain Services business and the Cross Border Services business, continued to show robust growth in line with our original plan. The FTL business has grown from INR 55 crores of revenue in quarter 1 financial '22 to over double that in quarter 1 financial '23, registering nearly INR 122 crores of freight value transacted. In the Supply Chain Services business as well, we've seen about 120% growth year-on-year with quarter 1 financial '22 having INR 106 crores of revenue, which has grown to nearly INR 240 crores of revenue for quarter 1 financial '23. And revenue from Cross Border Services, excluding traded goods, has grown from INR 51 crores of revenue in quarter 1 financial '22 to INR 78 crores in quarter 1 financial '23 as our integration with FedEx has stabilized. In terms of adjusted EBITDA, quarter 1 financial '23, which is the third column in the table, revenue from customers, as discussed, stands at INR 1,746 crores. We are broadly neutral at the service EBITDA level with a final adjusted EBITDA of negative INR 217 crores or minus 12.5% compared to quarter 1 of financial '22 where we had an adjusted EBITDA margin of negative 4%, so a decline in the adjusted EBITDA by about negative 8.5%, and compared to quarter 4 where we made an adjusted EBITDA of INR 81 crores, a change of about INR 300 crores. Moving to the next slide. This is a quick bridge on the change in adjusted EBITDA from quarter 4 financial '22 to quarter 1 financial '23. At the top of the table is the quarter 4 financial '22 adjusted EBITDA of INR 81 crores. In quarter 1 of the year, we typically add, as I've discussed, manpower, fleet and infrastructure capacity in anticipation of higher volumes between quarter 2 and quarter 4. We added close to INR 21 crores of cost in this period, which is 2,500 additional staff, 30 trucks and 85 trailers, which is in line with our sort of larger objective of movement to trailers, and about 740,000 square feet of transportation infrastructure. As I discussed, we chose to continue and retain existing capacity of fleet, of manpower and of infrastructure in anticipation of service recovery to ensure that service levels stayed stable and to make sure that as volumes went up, client experience was not affected. The overall cost of the underutilization of this existing capacity is to the extent of INR 150 crores in quarter 1 of financial '23. And in addition, our annual inflation cycle, which comes from wage hikes and rent escalations, has added up to INR 17 crores. So the net impact of B1, B2 and B3 is INR 188 crores. In addition, the exit of Shopee, which gave us 22 million parcels in quarter 4 financial '22, has an impact, along with reduced revenues in the part truckload business, of close to about INR 60 crores, leading to a total reduction in service EBITDA of INR 188 crores plus INR 60 crores, which is INR 248 crores, and a minor increase in corporate costs, leading to a total impact of INR 252 crores. Excluding onetime integration costs, which include onetime provisions for heightened claims from customers and INR 6 crore in payments to vendors as support for quarter 1, the adjusted EBITDA prior to the integration cost stands at negative INR 171 crores and including onetime integration costs, which we do not expect will continue into quarter 2 and beyond, at negative INR 217 crores. The next slide shows the comparison versus prior periods. In steady state in quarter 3 financial '22 and quarter 4 financial '22, the business had achieved adjusted EBITDA margins of close to 4%, which in quarter 1 financial '23 affected by the Spoton integration stand at negative 12.5%. The next slide is a detailed breakup of the adjusted EBITDA. Total revenue from customers for quarter 1 financial '23 was INR 1,746 crores. Total expenses stood at INR 2,206 crores. After adjusting for noncash expenses and adjusting for these adjustments due to AS 116 and onetime operating expenses such as our IPO expenses and a noncash nonoperating cost, the adjusted EBITDA stands at negative INR 217 crores, as discussed, as compared to INR 81 crores for quarter 4 of financial '22 and negative INR 58 crores for quarter 1 of financial '22. The adjusted cash PAT for the same period stands at negative INR 187 crores or negative 10% compared to 5% in quarter 3 financial '22 and 6.6% in quarter 4 financial '22. The adjusted cash PAT bridge is the same as the adjusted EBITDA bridge with more or less the same adjustments. Finally, in our previous earnings call, there were a number of initiatives that we had outlined for financial '23. This is a quick update on where we stand on each of those. The first was the integration of the Delhivery and the Spoton networks. So all 3 phases of the integration between Delhivery and Spoton have now been completed. Customers and teams have been integrated. Technology systems have been integrated. And operationally, from an infrastructure and network operations standpoint, both networks stand fully integrated. And as discussed, service levels have stabilized as of the end of quarter 1 financial '23 and remained robust. We continue to integrate the networks and grow volume. And so we continue to realize network synergies. And we'll launch our economy PTL service through financial '23. We are in the process of expanding our overall infrastructure by about 4 million square feet. About 740,000 square feet has been commissioned and delivered. We continue to expand our tractor trailer fleet to its full size of 150 TTs and have expanded our automated sortation capacity by 35% in this period in advance of peak season volumes. We continue to introduce new automation across our major sort centers, and our hubs have moved fully to system directed mid-mile operations, as expected, with the integration of Delhivery and Spoton. We continue to expand usage of electric vehicles across our entire network and continue to pilot LNG and EVs in our mid-mile operations. Our cross border express product now stands fully integrated with Delhivery and FedEx now cochairing airway bills seamlessly. Our Supply Chain Services business, as discussed, continues to show robust growth. We've grown by nearly 120% between quarter 1 of last year and quarter 1 of this year with a focus on key industry verticals like auto, chemicals, consumer durables and retail. We have launched the Delhivery direct-to-consumer academy and are in the process of launching our unified client portal and our merchant panel for small and medium businesses to access all of our products. We launched the Delhivery direct consumer-to-consumer shipping app and are in the process of launching our Orion truckload price discovery and booking application and are in the process of launching our platform service for global third-party developers, along with our SaaS offering in select international markets. So that's a brief summary of financial performance for quarter 1 of fiscal '23. So with that, I will pause, and we are happy to take questions.

[Operator Instructions] The first question is from the line of Abhishek Pathak from HSBC.

I had a couple of questions. The first one was, we have seen some sequential pressure in global e-commerce volumes. Do you see something similar or at least a deceleration happening in the Indian e-comm space over the short term and the next 2 to 3 years? That's the first one. And number two, there have been some questions around the viability of the social commerce model. And considering we have a significant dependence on social commerce platforms for volumes, is this something that the company is sort of worried about over the short to medium term?

Thanks, Abhishek. Good questions. Let me begin with the first one, which is, are we seeing a slowdown in e-commerce generally in India? The short answer to that is not yet. If you look at our volumes, they have grown 50% a year between quarter 1 of last year and quarter 1 of this year from 100 million shipments to 150 million shipments. Even adjusting for share gain that we have had in this period, I think that does represent growth in the market overall. If you remember in our previous earnings calls, one of the things that we had pointed out is that while individual players were likely to see turbulence in e-commerce through this financial year, we are pretty confident that the broad trends for e-commerce continues to be positive. And when you look at the underlying reason, it's simply the fact that e-commerce in India is heavily underpenetrated. Penetration in India is less than 7%, whereas comparable penetration, for example, in a place like China would be north of 20%. And so we expect that there will continue to be a secular shift towards e-commerce going forward. Individual players may certainly continue to face turbulence. And from a Delhivery standpoint, as we discussed, we don't have a significant dependence on any single client. And so in that sense, there is no impact on our overall volumes, as you can see. Outside of that, I think your second question was around social commerce. I think, look, the way we look at it is that a variety of players will experiment with different models in e-commerce. However, the broad trend towards buying online will continue. Even players who sort of have been bracketed under social commerce has sort of pivoted to being a mix of social commerce and more traditional big-box commerce. And I think irrespective of the model that different players will follow, the demand from consumers will continue. And given that we're the largest player and the most efficient player in the country, our volumes will continue to remain stable. So we don't see a large risk going forward.

The next question is from the line of Hitesh from CLSA India.

My first question is on -- I noted the fact that you've gained some market share in the e-commerce space. Can you talk about how much the industry has grown during this quarter? And my second question is on profitability, right? I mean, I understand this is a weak quarter because of integration issues and also lower volumes. But how should we look at profitability over the next 2 quarters, right, when the integration benefit starts coming and volumes scale up? So if you can give us some guidance on how margins could scale up from hereon.

Sure. let me begin with market share in e-commerce. I think, again, I'll direct you first to the overall growth in volumes from quarter 1 of last year to quarter 1 of this year, which is from 100 million shipments that we did last year to 150 million shipments this year. So I think we certainly have gained market share in this period because the industry has not grown by 50% in a year. Between quarter 4 of last year and quarter 1 of this year, it's a little difficult to say because of the outsized impact that Shopee's exit had on the market overall. I think when you include Shopee, it's safe to say that the market has not grown between quarter 4 financial '22 and quarter 1 financial '23. Whereas we look at our volumes, adjusted for Shopee, we have remained broadly at the same 152 million mark. So when you adjust for that, I think we've gained some share in the market between quarter 4 and quarter 1. To your second question in terms of profitability, I think while we're still in the process of regaining volumes and our service levels have remained stable, we have seen recovery of volumes from all of our major customers. The overall recovery will play out through quarter 2 as well. And so we remain optimistic about this. But the way to think about our business is pretty simple. As I've mentioned in the slide that we've presented earlier, Amit, if you can just bring up that slide briefly, Amit or Apar, the bridge from INR 81 crore of quarter 4, yes. If you look at this, the biggest impact really on profitability has been point B2, which is underutilization of existing capacity, which is INR 150 crores, and the revenue-led reduction in service EBITDA, which is the INR 60 crores. So first of all -- and obviously, the INR 46 crores of onetime integration costs. So first off, obviously, we do not expect the onetime integration costs to persist through the year. The second is as volumes come back, the underutilization of existing capacity should disappear, and the network should automatically become more efficient. One thing that I should point out is that this existing capacity itself will shrink a little bit going forward because we do continue to carry infrastructure. We do continue to carry certain contracts from Spoton's sort of previous days, which we haven't yet fully depreciated. If you can go to the KPI slide for a second, Apar, at the start of the deck, one of the things that you will see here is that the number of gateways have declined from 123 as of the end of financial '22 to 96 as of quarter 1 financial '23. And similarly, the number of freight service centers have declined from 267 as of the end of financial '22 to 237 as of quarter 1 financial '23. And so as these contracts become available for renewal or for termination, we will continue to sort of consolidate the combined Delhivery and Spoton network and continue to sort of realize synergies going forward. So that's sort of how the excess capacity will get absorbed.

Okay. Sorry, if I can ask one more question, just a final question. On pricing front, we are seeing some stability on the e-commerce pricing, where it has kind of not gone down much, right? So should we expect the pricing to remain now stable or you will still -- because you have the lowest price in the industry? Or you will continue to prioritize market share over pricing in e-commerce segment?

See, pricing is a strategic decision that we take at an account level. The difference in pricing that exists between any 2 quarters could also be because of a change of mix, for instance, or a change of the distance that parcels travel. In this case, there's obviously a big difference because of the disappearance of Shopee between quarter 4 and quarter 1. We evaluate pricing at every customer level and depending on sort of the customers' ambitions for growth going forward and what our margin projections for each individual customer are. But suffice to say, I don't think we will be taking any significant pricing actions through the rest of the year.

Next question is from Mukesh Saraf from Spark Capital from webcast. "Slide 12 inflation impact of INR 17 crores. Could you let us know which segment this impact has primarily been filled in as they would usually be passed through fuel hikes to customers? Would these costs be subsequently passed through with a lag? Supply chain revenue has grown to INR 236 crores in the quarter. What is the total warehouse space square feet for this segment as of June end? What is the target for space additions in FY '23, FY '24? Is there a split between transportation and warehousing for this INR 236 crores? Or is this entirely warehousing?"

Sure. Let me start with the question on inflation. The overall inflation of INR 17 crores includes inflation due to wage hikes, inflation due to renegotiation of rental contracts and inflation due to fuel. In the part truckload business, you're right, the hike in fuel is essentially passed to customers entirely. And so to that effect, it doesn't have any impact on profitability directly. So majority of this comes from wage hikes and rent escalation. Given that we run an integrated network, it affects all of our businesses sort of in a conjoined fashion because our part truckload business and our express business share the same people. They share the same fleet, and they share the same infrastructure. In terms of supply chain revenue -- sorry, there was a question on would these costs be passed through with a lag. We discussed this earlier. Fuel inflation is typically passed through with a max lag of 15 days to customers, which is in line with sort of regular industry norms. Your question on supply chain, the revenue of INR 236 crores is a combination of transportation and warehousing revenues. The target for space addition in fiscal '23 is likely to be close to about 1.67 million square feet. However, I should point out that this is a projection at this point in time based on the pipeline that we have and the contracts that we've agreed. And sort of as we get closer to real-time commissioning of these and availability of space, this number may change a little bit. But I'll invite Amit, who is our CFO, to comment on question 2 as well. Amit, if you are on the line.

Yes, Sahil. Thank you. So our Supply Chain Services business did INR 236 crore of revenue in quarter 1 of FY '23. Out of this, nearly 40% of revenue was attributable to the warehousing services, and remaining was attributable to transportation. But I want to point out that nearly 90%, 95% of revenue in this segment is a combined contract of warehousing and transportation. It's not a separate service contract, integrated contracts. Sahil pointed out that we intend to add about 1.7 million square feet of this fiscal year based on our pipeline. Out of this, we have added about 0.5 million square feet of space in quarter 1 based on the contracts that we have converted and expansion with the existing customers. And the remaining capacity will be added as and when we get very close to the finalization of the contract with the customers.

The next question is from the line of Lokesh Garg from Credit Suisse.

I just wanted to have your perspective on competitive scenario that you face in the industry. Obviously, there are excess parcel companies which are competing, which you know. But there are traditional courier companies also which you've cited have not pivoted to the e-commerce business. Over a period of time, is it possible that they, combined with marketplace -- shipment marketplace-type companies, can actually -- sort of combined together can pivot to provide e-commerce parcel services as you do and thus, could rise up the ladder and be more competitive with you? And is that already happening and your perspective around that?

Yes. So our perspective on this is pretty simple, which is that shipment marketplaces have a limited strategic value to the market as a whole. Any player who is a significant shipper is better served by having direct relationships with logistics companies however many they choose to have because their shipment volumes are large enough to ensure both appropriate price discovery as well as appropriate service discovery. And they don't really need the services of an intermediary. This isn't something that is specific to India, by the way. This is something that is seen across the world, whether you look at the U.S., where customers continue to have direct relationships with the likes of FedEx or UPS or the United States Postal Services, or in China or elsewhere. The other piece is, I don't think that the reason why traditional courier companies have been unable to penetrate the market is the absence of shipment marketplaces. I think the reality is that they have not been able to address this market because the underlying models that they have are not robust enough to service the needs of e-commerce. Whether it is picking up from a widely distributed set of merchants of variety of different sizes, whether it is investing in infrastructure to go out and build automated sortation centers or running line-haul, these are not sort of physical capabilities that are dependent on shipment marketplaces in any way. So if the question is, can sort of traditional players work with aggregators and gain market share, I'd say that, that opportunity is probably extremely limited because that's an opportunity that has presented itself to traditional courier companies from before the time that Delhivery began as a company. And they failed to capitalize on it. And the existence of a marketplace doesn't make it more viable.

Sure. I have a second question, which is related to the 3 new businesses or segments or services that you have started. One is basically same-day delivery. Other is C2C, and third is economy PTL. Now what is the relevant size that we have either in terms of total parcel opportunity or percentage growth opportunity that you can highlight to us from some of these services? And in economy PTL, I have an additional question. As to economy PTL essentially, the lower PTL service, today, Delhivery network runs on express, right? It's a single speed network. By introducing a slower service, will you end up confusing the network?

Yes. That's a very good question, and let me answer the latter question quickly on economy PTL. The way to think about how Delhivery is constructed and why we run an integrated network is think of us as essentially building a pipe and then figuring out the optimal combination of boards that need to go through that pipe. And so in some senses, for us, it's a question of being able to identify what is the appropriate truck on which to place a part truckload shipment that belongs to the economy PTL segment. So we actually see the economy PTL as a way for us to take up utilization of the express network. To give you an example, let's say, we have a truck which will either depart from Delhi to Bombay, which is 80% full. If we happen to have economy PTL loads, which are available and can ride on that truck, then they essentially get to ride for free. As long as economy PTL is not set up as a completely stand-alone capability but is set up subservient to the integrated network, which is an express network, as you pointed out, it's actually a margin accretive business, which delivers a better quality of service to those customers. The second thing is that the economy PTL business typically tends to have larger LR sizes or larger weight for a load that is tendered to logistics companies. And so in that sense, the handling costs are significantly lower for us. And so again, it becomes margin accretive. The size of the economy PTL business is -- the easiest way to think about it is it's about 2/3 to 3/4 of the overall part truckload freight market in India because traditionally, the Indian PTL market has been an economy or a slow PTL market. Increasingly, though, with an improvement in highways, with an increase in truck sizes, with the presence of players like us, the market is shifting from economy PTL towards and express PTL market. So for us, economy PTL is an interesting capability that we will offer to certain kinds of shippers. We will use it to drive up utilization of our network, especially in key geographies. But it's not really a stand-alone capability. In terms of consumer-to-consumer, at this point in time, it's hard to judge exactly how large that market is because this is a market that again, historically, is one that has been starved of supply. There aren't too many options for consumers to really ship intercity from the comfort of their homes. They still traditionally have to walk up to a traditional retail outlet and ship, whereas now they have the ability to do that from their homes. Our volume growth has been pretty robust. In peak, I think, including both our direct consumer-to-consumer network as well as our franchise network, we've hit close to about 1.5 million orders in a month. And that continues to grow. However, I don't have an exact market size for how big it will be. It's an interesting capability for us to add and rides on our existing business and its high margin. And your last question was on the same-day delivery. That, again, is the capabilities that we've added for specific customers. We already provide same-day delivery services. So intracity shipping is already same-day delivery. In this case, all that we have done is to open up some of our delivery centers or some of our intermediate processing centers as micro fulfillment locations where it is possible for certain direct-to-consumer brands to stock fast-moving inventory with us and for us to deliver within 4 to 6 hours in a tight catchment area. But again, it's a service that we already provide.

Sure. If I'm allowed, I have one more question, which is basically the total parcel that you're carrying obviously originate from -- bulk of them originated from obviously e-commerce platform, the 2 large ones and some of the new upcoming ones such as social commerce and all that. I wanted to just check with you if you have this number. Are there a meaningful number of parcels now originating from omnichannel merchants, meaning these merchants are not traditionally online but are now becoming online because of the leads [ are there ], and you are enabling them to do so? You took one example in the last quarter call, probably Tupperware. So are there a significant proportion of parcels originating from these? And the question is important because these are not affected by e-commerce funding situation. These are sort of running on its own scheme, as you said, its online buying scheme.

Yes. I'm going to let Sandeep answer this question. Sandeep, go ahead, please.

Sure. Thanks for that question, Lokesh. So when we look at -- when we bucket D2C and SME segment together, that actually includes mostly companies that are not necessarily just e-commerce but also traditional brands that are now starting to actually go online, so again, most likely to be unaffected by any funding issues, plus people who actually are asking us to pick up from store rather than pick up from warehouse. Now I cannot tell you exactly what number -- what is the volume of shipments that we pick up from store versus pick up from warehouse. But is there an increasing salience of the shipments coming from nontraditional e-commerce? Absolutely. I know it's an odd thing to say, nontraditional e-commerce, but that is definitely growing. And even on e-commerce, bulk of our shipments do not come from the 2 large platforms. We don't actually have that degree of concentration in our business because we work across all the large platforms, including some of the vertical players who are actually quite scaled up as well and quite well funded, so yes. But to your base question, absolutely, D2C and SME and omnichannel is clearly becoming a greater salience on the overall business.

Next question is from the line of Vijit Jain from Citi.

Can you hear me?

Yes.

Yes. So I have 2 questions on the e-commerce business. One, in the same-day delivery offering, is there a pricing differential or significant pricing differential per parcel that exists between that and conventional offering? And the second question is related to the price hike that you took with the aggregators earlier this quarter. I'm just wondering, to address the aggregators, do you need to do more than that over the next year? Does it include ramping up sales persons to onboard the long tail? Or do you need to build or offer channel integration? So just your thoughts on how you're addressing aggregators.

Sure. On same-day delivery pricing, yes, same-day delivery is charged at a premium to regular delivery. And especially same-day delivery originating out of micro fulfillment centers is charged at a premium to regular delivery. The premium varies depending on the volume and depending on the specific city in which we are operating because costs for this are different across, for instance, metros versus nonmetro cities. And we have 15 cities that we are currently operational in. To your second question, I'll go back to my earlier answer, which is that we don't particularly see anything that we have to do differently for clients above a certain size. Customers above a certain size are better served working directly with not just Delhivery but other logistics companies as well. And typically, the systems that they have will be capable of allowing them to manage more than one logistics partner. It also is more effective because logistics partners, whether Delhivery or others, have the ability to provide greater customization of services when working directly with these customers. So we don't think that we have to add any capabilities. Those are capabilities that logistics companies have. As far as the aggregators go, they're a good sales channel not just for us but for all other logistics companies in the market for merchants who are below a certain size. But after merchants cross a certain size threshold, Delhivery and other logistics companies across the country typically will see customers approaching us directly and to integrate directly.

And my second question is just that comment about the impact of Shopee in 1Q. I think you mentioned 22 million parcels and about INR 60 crores impact on service EBITDA. Did I understand that right? So it basically translates to INR 27 per parcel of service EBITDA impact from Shopee?

The overall impact that you saw on that slide of INR 60 crores also includes some impact due to revenue loss in the part truckload business at constant service EBITDA margin. But broadly for Shopee, I think the numbers will be closer to about INR 40 crores to INR 50 crores in terms of revenue-led reduction.

And one final question. Could you -- just a housekeeping question from my side. Could you give a number for the CapEx for the quarter and the FCF for the quarter?

Amit, can you take that, please?

Yes. So the total use of cash in this quarter was about INR 215 crore. Out of this, about INR 75 crore was attributable to cash flow from operations, about INR 225 crore was CapEx. And there was about -- excluding the IPO proceeds, there was about -- net drawdown and some receipt of money from particular investor was about -- related to tax indemnity was about INR 85 crore. So adjusting all these trends, total use of cash in the quarter was around INR 215 crores.

Next question is from Ankit Jain from Mirae Asset from webcast. "A couple of questions. Any sense on possible loss of revenue in PTL business for the quarter due to integration? Two, reason behind yield per parcel further coming off in Express Parcel business to around 59% versus 72% in FY '20. Any impact on service EBITDA and core express business as a result of the same? And third, nature of onetime provision cost of INR 40 crore?"

Sure. Ankit, just on the first question, when you're talking about possible loss of revenue, do you mean permanent loss of revenue or only in the quarter? Okay. So...

Let's assume it's for the quarter.

Yes. So for the quarter, if you look at our overall, if I can direct you to the slide, Apar, if you can go to Slide #3, which has the PTL revenues quarter 4 versus quarter 1. Yes. So if you look at the graph at the bottom right, what you will see is that part truckload freight revenues have dropped from INR 482 crores in quarter 4 financial '22 to INR 260 crores in quarter 1 financial '23. So the net impact has been close to about INR 223 crores between quarter 4 and quarter 1. A bulk of this was related to the integration-related issues earlier in the quarter, and we are seeing volume recovery and we are seeing revenue recovery and expect this to continue through this quarter and forward. To your second question, in terms of yield per parcel, the yield per parcel is a mix -- is driven by a mix of clients, is driven by a mix of distances that packages are traveling. And so as that shifts, the yield actually shifts across quarters. For example, we are likely to see an increase in yield again in quarter 3 during the Diwali period, but that's just the natural cyclicality in the business. In terms of impact on service EBITDA on the core express business, again, if I can direct you to the table that we had put up on the adjusted EBITDA bridge, Apar, if you can go to that. No, the one which goes from INR 81 crores to negative INR 217 crores. Yes. So our express and our part truckload businesses, as I mentioned, share the same resources, whether it is infrastructure, whether it's staffing or whether it's fleets. Our mid-mile facilities, for example, or our trucks are running a combination of express as well as PTL. And so a decline in the PTL volumes that are flowing through the network will have a natural impact on overall transportation EBITDA. And therefore, if you were to do an allocation, it would also affect express service EBITDA in that period. So the impact from the core express business has come from the integration rather than a change in yield. The express business is designed so that the margins are constant irrespective of a change in mix of the network. So had our PTL volumes remained at their quarter 4 levels, even with a decline in the express yield because of a change in mix, the margins would have remained constant or would have grown with time. In terms of the nature of onetime provisions of INR 40 crores, these are largely claims which are related to 2 specific outcomes. One is, through this period, there were excess damages that were created in our network as the Delhivery and the Spoton network were combined. And the second was extraordinary package losses or package delays owing to integration issues coming out of Tauru and Bhiwandi, where we've essentially provided these as discounts back to our customers, which are a onetime integration expense.

The next question is from the line of [ Saurabh Dugar ] from Motilal Oswal.

Congratulations on the integration of Spoton. So my questions have been answered previously. Just wanted to clarify, like on a Q-on-Q and a Y-o-Y basis, if we remove the Spoton integration, what would be the EBITDA and margin? And the second question would be, what would be the contribution of Spoton on the overall FY '23 revenues and FY '24 revenue and margin?

Sure. Again, if I can just direct you to the -- Apar, if you can go back to the bridge from INR 81 crores to minus INR 217 crores, yes. So broadly to your question, if you remove the integration impact on this slide, the costs that disappear are the INR 150 crore cost, which is underutilization of existing capacity; obviously, the INR 46 crores, which are the onetime integration costs; and a portion of the revenue-led reduction in service EBITDA, which we expect will be likely in the range of about INR 20 crores to INR 25 crores. So INR 150 crores plus INR 46 is INR 196 crores, plus about INR 25 crores. So essentially, we would have been at an adjusted EBITDA breakeven had we shown 0 growth between quarter 4 and quarter 1. So if our quarter 1 volumes in PTL had remained exactly the same as quarter 4 and we take into account the disappearance of Shopee with overall express parcel volumes being at 150 million, we should have been at broadly breakeven in quarter 1 financial '23. So the costs that would have persisted -- the other way to think about it is that the costs which would have persisted would have been the INR 21 crore capacity addition during quarter 1, the inflation impact of INR 17 crores and a part of the revenue-led reduction in service EBITDA to the extent of Shopee's disappearance, which would have been close to about INR 40 crores, INR 45 crores. To your second question in terms of how much does Spoton form, what I can tell you is that the overall park truckload business, if you go back 2 slides, Apar, please, the overall power truckload business was at about 1/4 of our revenues in quarter 1 financial '22 and quarter 4 financial '22, as you can see, which has declined to 15% as of quarter 1 financial '23 owing to the integration. And so our expectation would be that as volumes recover, first of all, it would form similar percentage of our overall revenues as it has in financial year '22.

Next question is from the line of Shashank Savla from Somerset Capital.

My question was more on the breakdown of the margins between the different segments. So I know you don't provide an exact number. But given that a lot of the extra costs have been related to the part truckload business, I wanted to understand if the margin trend in the other businesses is improving over time as your business is getting bigger and bigger.

Yes. So Shashank, broadly, the answer is yes. As you can see and as I pointed out earlier, we run an integrated network where the -- substantially, the biggest costs that are shared between the 2 networks are the mid-mile costs, which are the trucking terminals in the hub, and outside of that line-haul or the trucking network itself. We don't break that down between express and part truckload. And so obviously, when there is a decline in the part truckload volumes, we decided to continue running the trucking network with the same capacities to ensure fast service recovery and to ensure express was not affected. And so there would have been a margin impact on both express as well as PTL. As PTL volumes have recovered, margins have also recovered across both the express as well as the PTL service lines. And they will continue to improve as PTL volumes continue to grow.

Perfect. And the bottlenecks and the one-off costs which you mentioned, is there any impact in the second quarter as well from that?

In terms of the service levels, service levels have remained stable more or less since the end of quarter 1 of financial '23 and have remained robust. So we're not seeing any sort of bottlenecks across the network. I think there continue to be 1 or 2 smaller locations where the Delhivery and the Spoton networks have not been fully integrated. And because of sort of the lease terms, we continue to carry redundant facilities, which will be integrated. So one location, for example, specifically would be Chennai, where both Delhivery and Spoton operate subscale facilities and, therefore, substandard for the size of the business that we intend to run. And that integration will take a period of time. But outside of that, we don't see these bottlenecks continuing across the network.

Margin -- impact on margin on PTL.

Yes. And other than that, I think your question was, do we expect the onetime expenses from quarter 1 to continue through the rest of the year? We expect some impact...

I was just trying to understand, is there any ongoing impact in the second quarter as well from the one-offs or the issues you mentioned in the first quarter?

I think a large percentage of the claims have been settled with customers in quarter 1. Some of them will be settled in quarter 2. And post that, we don't expect there to be significant sort of persistence of the onetime integration costs. Those will not continue as volumes recover [indiscernible].

The provisions for them have been made in the quarter 1, it seems.

Yes.

Right. Okay. And finally, is there any guidance which you are willing to provide in terms of or any targets for what your revenue growth or profit EBITDA margin targets would be for this year or next year?

I think it's still too early for us to provide annual guidance at this point. It's important for us to see how the next quarter plays out as well. And then obviously, we're entering the peak season, so we'll have a much better sense of how the year will play out. In terms of what the economics of the business will generally look like, I think you can look at our quarter 3 and our quarter 4 results and our financials for the previous financial year. In that sense, since our business is not very difficult to model, we've retained the same capacity. And as volumes go up, that's what our margin trend should look like.

Next question is from the line of Alok Deshpande from Edelweiss Securities.

A couple of questions from my side. First, I know that you've quantified the Shopee impact. But generally speaking, over the last 2 or 3 years, what is the typical trend of shipment volumes from quarter 4 to quarter 1? So like you mentioned, if you said just for the Shopee volumes, it would have been the similar number of 150 million shipments. But historically, how does this trend move from quarter 4 to quarter 1? That's question number one.

Broadly flat, Alok, in line with what we've seen, where the 150 million-odd that we did, excluding Shopee, for quarter 4 has remained flat in quarter 1. What is different this time, I should point out, though, is that the industry has degrown between quarter 4 and quarter 1 because of Shopee impact.