Delhivery Limited ($DELHIVERY)

Hello, everyone. Welcome to the Fourth Quarter and 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. Kindly note that this call is meant for investors and analysts only. If there are representatives from the media, they are requested to kindly drop off this call immediately. To discuss the results, I'm pleased to welcome Mr. Sahil Barua, MD and Chief Executive Officer; Ms. Vani Venkatesh, Chief Business Officer; Mr. Vivek Pabari, Chief Financial Officer; Mr. Varun Bakshi, SVP and Head of Park Truckload, Mr. Navneet Kumar, SVP and Head of Supply Chain Solutions. Thank you, and over to you, sir, for your opening comments.

Thank you, Dhruv. Thank you, Ambit team for hosting us this evening. Thank you all for joining our earnings call for Q4 FY '26 and FY '26 consolidated this evening on a Saturday. Before I begin, I'd like to sort of formally welcome Mrs. Neelam Dhawan as Chairperson of the Delhivery Board. She has a long career in technology and technology services, of course, is unparalleled. And we expect that under her leadership, Delhivery will go from strength to strength. I'd also like to welcome Mr. Kabir Ahmed [indiscernible] on to the Board of Directors of Delhivery. Kabir served as the CFO of Tata Communications prior to which he had a long stint at Unilever and then at Microsoft. With this, the exercise of reconstituting the Delhivery Board is now formally complete. I'd also like to place on record on behalf of the entire management and Board of Delhivery thanks to Mr. Romesh Sobti who will be stepping down from the Board of Delhivery after 5 years, having joined us in 2021 and having played an enormous role in helping us take Delhivery public and shaping our strategy over the last 5 years. Before we begin, I think, as usual, my colleague, Vani Venkatesh will take us through the presentation, after which we will take questions. But just quickly in summary, I think FY '26 has been another year for Delhivery in many ways. Of course, the headline was our completion of the acquisition of Ecom Express earlier in this financial year. But just in terms of a quick headline summary, we closed the year with over INR 1,400 crores in revenue, delivered over 1 billion packages in the financial year. By way of context, it took us nearly 10 years to deliver our first billion packages since our inception. Also reached about 2 million metric tons of freight in our part truckload business. Margins continue at the upper end of our normative margin guidance of 16% to 18%. PTL margins expanded again successively and have reached [indiscernible] on the back of a reduction in capital intensity to less than 5% of revenue and a massive reduction in net working capital days. So all in all, a very strong quarter, a very strong end to fiscal '26. The company continues to be extremely well capitalized, with over INR 4,500 crores of cash on the balance sheet. And so without further ado, Vani, please take us through the presentation.

Thank you, Sahil, and thank you, Dhruv. I'll just run you through the presentation now. So in summary, actually, FY '26 was a very good year, record, in fact, in volume and profitability in strategic progress. And let me just take you through what moved the needle. So firstly, on the core transportation side, we delivered 1 billion plus shipments this year. It's been -- it's been a year with about 40% growth. On PTL also, we've done about 2 million metric tons this year. And together, the 2 businesses expanded our service EBITDA by about 220 basis points to take us to 15.6%, and this with an ROIC of 16%. These are, in fact, the returns that will be funding what comes next. Coming to Supply Chain Solutions. Supply Chain Solutions again turned the corner pretty decisively this year. We expanded our service EBITDA about 4x to INR 79 crores. The margin model here is established. The pipeline is healthy. We've signed and activated 2 mandates in the last quarter. So that's on supply chain, which is pretty much at an inflection point. This paves a way for new verticals to scale up. So the cash flows from [indiscernible] now being deployed with discipline into our next growth pillar. So as we mentioned last time, we've been investing in local and cross-border in rapid and financial services. These are, of course, long cycle bits we can now invest some in a position of strength. And underpinning all of this is, of course, our tech and engineering moat that we've been building for years, leveraging AI across the network, facilities, automation, new trucking form factors and active R&D in robotics. So we continue to invest heavily, so we can stay ahead as we scale. I'll quickly run through the financial highlights. Our revenue from services stood at about INR 10,486 crores, generating an EBITDA of 7.3% at INR 764 crores. PAT came in at INR 347 crores. That's a 3.2% margin. And this profitable growth helped us turn free cash flow positive this year at about INR 89 crores. The quarter revenue again came in at about INR 2,848 crores part at about 3%, that translates to INR 87 crores. Core transport yielded 16% ROIC, and our balance sheet continues to stay strong with over INR 4,500 crores of cash and cash equivalents. So all in all, it's been a profitable quarter and a profitable year. I'll take you through a quick view of our segments. Transport revenue for the quarter was at about INR 2,453 crores and that comes in at a 7.9% adjusted EBITDA, giving us about INR 194 crores of adjusted EBITDA. If you get to break this into the 2 segments, Express revenue came in at about 2/3 of this at INR 1,832 crores. That's a milestone to 46% Y-o-Y revenue growth, and that's a 70% to 73% volume growth. Now that the volumes this quarter were [ $306 million ], pretty encouraging. In fact, sequential increases -- it's been a sequential quarter increase even compared to the last quarter, which was a peak quarter. Likewise, PTL clogged in 20% growth in both revenue and volume terms came in at 549 metric tons and giving us INR 622 crores of revenue. Coming down to supply chain. Let me just go back 1 page -- let me just go back 1 page and also run you through the full year. I run you through the quarter numbers. So if you look at it from a full year point of view, the revenue for transport has been INR 8,939 crores, that came in with a margin of INR 561 crores, at 6.3%. Express gave us about 1 billion parcels, again, a record this year, revenue of INR 6,685 crores. PTL was again record breaking this year, so 2 million metric tonnes, giving us a revenue of INR 2,254 crores. So both these segments, both Express and PTL have really delivered solid and strong robust growth this year. Ton of structural cost advantages and operating leverage also driving the performance for these businesses. Coming back to supply chain. So like I mentioned earlier, we decisively pivoted to profitability this year. Very sharp calls on businesses to stay in businesses to see to make sure we have a viable model that we can scale. As you can see, our revenue is at INR 729 crores. The highlight is the turnaround in the service EBITDA from 2.2% last year, we scaled it to 10.9% this year. So the expanded service EBITDA gave us INR 79 crores of margin, which is 4x last year. We also have a healthy pipeline here, and we feel pretty ready to scale given that we will establish a viable profitable model here. As we bundled all of this performance into our segment P&L, you find that the transport adjusted EBITDA has expanded 260 basis points to 6.3%. I call your attention to the box on the extreme right. So that's about 6.3%. Again, if you were to look at Supply Chain Services, that's got into breakeven levels. All of this translates to an overall percentage margin of about 4.4%. That gives us INR 457 crores of adjusted EBITDA on a revenue base of INR 10,486 crores. If you look at the box that is the quarter box, again, the overall adjusted EBITDA percentage [indiscernible] revenue of INR 2,848 crores, giving us an adjusted EBITDA of INR 151 crores. In addition to the profitable growth, our teams have focused with a sharp eye on capital efficiency. On the left side, [indiscernible] that's come down to 11 days. Very sharp drop in receivables. There's been a -- this has been brought on with very disciplined and timely collections, including leveraging AI and automation on these. If you look at the page to the right, again, from a CapEx intensity point of view, CapEx as a percentage of revenue has been brought down diligently. We were at about 7.8% in FY '23. That's come down all the way to 4.7% now. So all of this has given us a fairly efficient -- all of this capital efficiency has actually helped us from an ROIC point of view. And if you look at the margin expansion -- and if you look at this, the margin expansion, along with the reduction in capital intensity has really resulted in a sharp ROIC. So we are at 16%. This is up from 5.2% earlier. So all the goodness in the transport businesses and other businesses that have generated margins in addition to the disciplined manner in which capital spends have been made and working capital has been optimized has resulted in this ROIC of about 16%. And the margin expansion and the discipline in execution, right, that we saw in the previous slides, it has helped us turn free cash flow positive. We are INR 89 crores -- we have INR 89 crores of free cash flow this year, and we're really happy about this. A couple of things. This is 1 year ahead of plan. We've given a guidance of this coming up in the next year. So this is 1 year ahead of plan, and this is despite all the integration expenses being factored in. So that, again, augurs well for how the business is positioned. So we continue to invest in our tech and AI that has been our moat and will continue to be ours. So our tech and AI teams have actually deployed LLMs and multimodal AI across all dimensions of operations, so be it voice, be it vision, be it local intelligence, be it real-time transaction processing, right, across the board. So it's underpinned in all our processes from -- right from order manifestation to mid-mile to last mile to post delivery. I think embedding AI across the product development process, reducing the time and cost to deploy new tech has really benefited us as we scaled our operations significantly. And equally, we have dialed up our investments in robotics and industrial automation. So in facility automation, be it autonomous mobile robos or automated storage and retrieval systems, 3D sorters, -- so be it in facility or deliveries, be it drones, being the first to get a road train on India after our last successful 46-week tractor trailer launch. So we've pretty much been in the forefront of this, both in terms of infrastructure as well as engineering. We also continue to invest in Delhivery labs to make sure we stay ahead and to make sure that we are able to continue to use our tech moat to differentiate and stay ahead. Investing in employee benefits and safety has always been paramount to us. So our philosophy is that we do well when our people do well. Our packages are happy when our people are happy. So from an employee benefits point of view, so we've continued to accelerate our coverage, accelerate our coverage in terms of medical needs, medical incidents or any financial support during specific life events that our employees need in addition for some of our partners, very attractive vehicle ownership program for our riders or meals and accommodation provided at large facilities, we continue to make sure that our employee benefits keep our employees comfortable. From a fleet and rider safety point of view, again, we've been taking on a bunch of initiatives, be it fully GPS-enabled fleet, which ensures real-time visibility or structured driver training program, initiatives to reduce driver fatigue, et cetera. So again, we've been continuing to make sure that fleet and rider safety is of paramount importance and likewise, under the roof safety. So certification in 100-plus gateways, AI-based camera sensing at mega gateways for real-time notifications, right? And then that is complemented with Delhivery academy training for making sure that all the safe practices are being used, early adoption of LI batteries. So we've been doing all of that. So investing in employee benefits and safety has -- we continue to place utmost importance to this. I think in summary, before we get to the questions, we'd like to state that overall, if you look at the year, it's been a satisfying year. We've reinforced market leadership in core transport business, both Express and PTL, as you saw the profitable growth. This has paved the way for new service build-out for deeper differentiation, continue to focus on service to make sure that service excellence through targeted network and infra investments continue. We're continuing to solidify our proprietary tech and engineering moat so that we always stay ahead from a cost and service leadership point of view. Financially, all of these -- the profitable growth and the capital utilization, the capital optimization has helped us make sure that this diligent cash flow accretion is driven by margin expansion and capital efficiency. We have a strong balance sheet, which enables disciplined organic and inorganic investments, and we continue to make sure that we have best-in-class welfare programs for our workforce and partner network. So in effect, we are signing off FY '26 with strong fundamentals across every line of business. The core is profitable. The core is cash generative. SES has pivoted. We have the balance sheet and the conviction to build our next chapter. With that, I'll hand it over back to you, Dhruv, for questions and answers.

[Operator Instructions] We have our first question from the line of Sachin Salgaonkar.

This is Sachin Salgaonkar from Bank of America. Congrats on a great set of numbers. I have a couple of questions. First question would be great to understand what kind of an impact could we expect from increase in fuel prices, both on consumption as well as costs. And we did see the comments from your shareholder letter. But Sahil, the question out here is on the ground, we are picking up in certain areas, in certain pockets, Delhivery has increased pricing by INR 1 to INR 2. So I would love to get your thoughts on that. And second question is, there are media articles about Amazon opening up its 3PL to get new customers. We know Flipkart did that a few years back. So just wanted to understand what kind of an impact could we expect from this? I understand these are not direct and big competitors at some level, but should we see an increased competitive intensity, especially with smaller customers like D2C brands and others as and how Amazon and Flipkart look to scale up their 3PL business?

Thanks, Sachin. On the first one, on the impact of fuel prices on consumption and cost, I think, first, let's get to the price question. I think the first -- we have a natural pass-through process, which -- where our prices are indexed to diesel prices at the pumps, especially in the PTL business. This is an industry standard. And so with the increase in the fuel prices, diesel price-linked contracts, obviously, we will see an inflation of price to our customers as well. This is a very standard mechanism which existed sort of more or less since we began the PTL business, where the sensitivity to the increase in fuel price is more -- is higher than in the Express business. In the e-commerce or Express business, the relative sensitivity to increase in fuel prices is actually not as high. That said, we still are covered with DPH clauses, which is diesel price hike clauses with customers. Those are evaluated on a customer-by-customer basis really, looking at what our margins are, the volume share that we have with customers and so on. Where there are more direct pass-throughs, for example, our airlines have introduced a surcharge, obviously, with the cost of ATF going up. And those surcharges obviously got passed forward to customers. So I suspect the INR 1 to INR 2 increase that you're seeing would have been immediately on our air shipping network. So we continue to monitor this. I think there will be some impact. Pump prices have obviously gone up right now by about INR 3. Those will get passed on to all of our customers. But there's no sort of broad pricing-led pricing increase that we have planned at the moment. The other is, if you look at our margins in Q4, some of the increase in fuel prices had already begun to show up in Q4. What we were able to do was to also organize further cost improvements in other areas of the network, which is why when you look at margins in Q4, overall margins in Q4 went up over Q3, which otherwise is sort of fairly unusual to see. So we'll continue to find other areas to improve productivity, continue to improve utilization of the network. And in cases where we're already covered, those prices will get passed on and all the others, we look at it on a contract-by-contract basis. In terms of the impact on consumption, we haven't -- it's too early for me to really comment here. I think there's been a INR 3 increase in prices of the pumps. Obviously, there will be some headwinds on consumption. But generally, I think I'll -- the way I would look at it is that a more volatile expensive environment is generally better for the market leader and generally better for Delhivery because what happens is that our relative cost advantages are larger. And so as an example, when customers want to reduce their overall shipping bills, we've seen in the past that they would transition more volumes towards delivery. So hopefully, that will play out. But I think in terms of impact on consumption, et cetera, I think let things play out a little more over this quarter, and then I'll have a better answer for you. In terms of your second question on Amazon opening up 3PL, I mean, you've sort of answered the question yourself, which is this is sort of old news in a way. This has been tried before. And I'm not really certain what strategic value it serves for anybody at all because the relative scale of Amazon's in-house operations compared to any client who onboards themselves on to Amazon Logistics is going to be absolutely miniscule, which is problem number one. So how exactly do you get customer service at all? The second is when it finally comes down to a process of deciding at the absolute last mile, which order has to get delivered when a rider has to make a choice and is running out of time. The first-party order is obviously going to get prioritized over any third-party order. That's the way first-party logistics is designed. And so given the relative scale, it is never going to make any sense. And the other piece, of course, is that we mentioned this before. I think we've even published or we've even put this out in the past. first-party logistics is more expensive than third-party logistics. This is after factoring in the margins that we make. So for most customers, I'm not entirely clear why they would willingly ship with any captive network, which is higher cost and does not have an ability to prioritize their interests. So per se, I'm not really sure that this will make any difference. I think this is just old product and a new wrapper.

Got it. Very clear. Just squeezing in a short question out here. We heard a lot of comments in terms of AI, robotics automation investments, what you guys are looking to make. I wanted to understand any impact on OpEx, either led by higher inference cost on CapEx we should expect on the back of this?

Not significant enough for us to sort of have to report anything unusual. On the AI front, look, there's been a lot of -- people have been experimenting sort of left, right and center across a variety of industries, but -- and even within logistics. But our approach has been sort of more focused. One is our approach has been focused on making our technology teams themselves more productive outside of certain use cases within our operations. So the idea is that we can develop and deploy features internally faster than we ever used to in the past. So something which would take maybe 3 or 4 sprint cycles or 5 sprint cycles to do can today get done in 1 or 2 sprint cycles instead, that makes us more agile. So that's been one key focus area from an AI standpoint specifically. The other is we've used it very strategically in, for instance, in 2 areas. One is in reducing documentation. So when -- especially in PTL, when you want to manifest a consignment, there's a lot of paperwork that we need to go through, and that's a productivity loss. Now that's an area where today, most of it has become automated. Similarly, even communicating with end consignes when you have scheduled deliveries to make or purchase orders that need to be sort of relayed between the carrier and the consigne. All of those are sort of now technology-led. And the other piece, of course, is in claims handling, where our overall claims handling process has become a lot more efficient. We don't have to rely on human beings anymore to sort of go through every claim that we receive. So our productivity on claims handling, our accuracy of claims handling have both improved overall. So that's been our focus from an AI standpoint. No change in terms of the size of our sort of -- it's not like we need to increase the size of our technology team or our inference costs have gone up massively or anything of the sort. And what's happened is we've also been able to reduce the sizes of the teams that were earlier doing, for example, claims handling or certain parts of customer service and so on. On the industrial automation and robotics front, the key area that we are investing in, there are several, but the one that I'd highlight the most is really AGBs within our mega gateways. One of the reasons is, obviously, we've brought this up in the past. I think the labor situation in India continues to tighten. And our anticipation is that this will tighten further in the future. And as a consequence of that, to maintain service reliability, the only option really for logistics companies, it doesn't matter whether it's Delhivery or anybody else, is really going to be the ability to have access to high-grade industrial automation. And one of the areas where this is going to become particularly painful is in facility movement. I don't think we're getting into driverless vehicles or anything just yet. So it really is going to be in how you handle loads within hubs and how you load and unload large trailers. And that's where our investment focus has been. This has been done by an in-house team. We launched Delhivery Labs about a year back. And we've gone from prototype to now being ready to sort of scale up our AGV pilots. We have been doing this in Bombay so far. This is going to be expanded to other mega gateways within this year. But again, it's not going to materially alter our overall guidance on CapEx. So we've come down to whatever 4.7% or thereabouts. We will get to our 4% target. At the moment, we're motoring a little ahead of original plan. But neither the AI initiatives nor the robotics initiatives are going to materially alter our CapEx trajectory.

The next question is from Aditya Suresh.

Congratulations. So first one is on market share, right? So clearly, the sands have shifted compared to, say, 12, 18 months back. So Sahil, I'd love to hear your thoughts and just zoomed out, right? Like one is broader market share, 1P versus 3P. And then within 3P, kind of your own sense of where you stand at, even a broad range of how you think the market has evolved would be really interesting. That's the first question. The second is on your net working capital. You've seen a really meaningful reduction there over the past, say, 4 years and particularly in the past 12 months. What's been driving this, right, particularly more recently? And what sort of impact is that having on your business?

Yes. Thanks, Aditya. Let me start sort of at 30,000 feet and then see if I can work my way into the weeds. In terms of overall market, I think after the E-com acquisition, we had said this at the time that the E-com acquisition was happening that there were too many players in the express space. So first thing, I think, is that overall, I think the market is in a better place. It's more settled. What you're seeing is more stable sort of long-term competitive dynamics as opposed to sort of short-term price caging, which we were seeing for a 2-year period prior to this financial year. So definitely a better market structure for Delhivery overall. In terms of the shift from 3P to 1P, I think one of the large marketplaces, which is now listed has anyway spoken about this publicly on their earnings call, I think the share of 1P has declined a little bit over the last year. I have said this before, and I do maintain this. Costs in 1P networks are higher than costs in 3P networks when fully loaded up. There's absolutely no question about that. The other thing to bear in mind in India is that we're seeing a raft of regulatory change. You are seeing minimum wages going up. You are seeing gig worker laws coming into effect. We are seeing an interesting sort of moment in time when labor shortages and productivity adjusted labor costs are inflating pretty fast. And I don't think 1P networks are immune from that either. Earlier, a lot of 1P networks would also get by sort of outsourcing or sort of outsourcing and inverted commas and therefore, regulatorily being in a sort of gray area. I think that also now disappears overall. So again, I think the cost pressures being what they are and with increasing fuel costs, the reality is that we should see a more benign structure for third-party logistics. whether it's us sort of Shadowfax or Blue Dart or whoever, overall, it's -- I think you'll see a gradual shift towards 3P, which is what I've maintained for quite some time. In terms of within the 3P market, I think we look at it 2 ways. One is sort of the key accounts or the 3 large marketplaces and then sort of everybody else, which is the long tail of the market. Overall, as we look at the long tail of the market, our share of the market continues to be stable or actually probably has grown a little bit Y-o-Y. We are a dominant player in that segment and continue to be there. And similarly, in different kinds of categories, which are important to us, for example, heavy shipping, which is something where, again, we have a fairly dominant market share. Within the 3 marketplaces, I think our share continues to be more or less stable. I know Shadowfax has declared pretty good numbers Q4 over Q4. And I think that's down to large growth in a single account where we have certain caps. So one of the things that we do actively is to manage our relative client concentrations across the network for 2 reasons. One, obviously, is to make sure that we can deliver an absolutely consistent service level to all of our customers because I've mentioned in the past, the big marketplaces tend to be pretty choppy in their volume profiles. And therefore, we have certain mechanisms which allow us to sort of meter their demand across our network so that we can maintain service quality, not just for them, but also for our other customers. And that's something that has been very effective in Q3 and Q4 as a consequence of which, of course, our PTL volumes have grown very heavily because the more stable you maintain service levels across the entire network, the more your PTL and heavy and smaller customers reward you. So in terms of market share that really matters to us, I think we're absolutely fine. Overall market share, there may be minor shifts here and there, but nothing very significant. In terms of net working capital, I think, again, Aditya, I've spoken about this since the time Delhivery has gone public. Our ambition has always been overall to reach free cash flow breakeven as soon as we can. I think original projections, even we had internally suggested that we would be able to do this towards the end of fiscal '27. But this has been a key focus area for us across all our lines of business, Express, ETL, supply chain services and FTL. I think there are multiple things that have driven this. One is, again, I think the earlier question was around what we're doing from an AI standpoint. What we're doing, of course, is it begins with being able to bill extremely fast and extremely accurately, which we're able to do now because our counter really begins from the moment that a parcel is delivered. So all the way from billing efficiency to proper client selection over a period of time, the larger we've got, the more careful we've been with the clients we onboard. There are sometimes large RFQs that we don't participate in, for instance, in PTL or certain customers, we don't work within Express because we don't believe that their payment philosophies match deliveries requirements. We've been more selective with that, and that's helped crunch working capital as well overall. And with clients, we've also been able to work out arrangements where we build them more than once a month in exchange for either certain preferential pricing, which is net accretive to delivery. And so all of these have sort of contributed to the overall decline in NWC. It's obviously very sharp. We're very happy with it, quite proud of it overall. And I think, hopefully, we'll continue this into the next FY.

The next question is from Vijit Jain.

So first question, Sahil, just to build on the previous answer you gave on the D2C long tail side in Express Parcel. You said broadly stable market share here. Would that be across your own direct efforts as well as aggregator business that you get? And in general, with all the investments that you're talking about making in product and everything, is there a path here for you to take your market share even higher than where it is right now?

Yes. So it's across not just direct customers, but also aggregators. There's no question. We've gained a lot of share. growth in both those segments has actually been very high, whether customers come to us directly as SMEs or D2C brands or whether it's come via aggregators. And is there an opportunity for us to continue to gain market share within that segment? Absolutely. One of the other ways that we have also gained market share with the SME segment specifically is with the Delhivery direct application where extremely small SMEs are shipping via delivery directly. So this isn't even via the Delhivery One panel or via any direct integrations or so on.

Got it. And Sahil, second question on the working capital comment that you made. So as the -- I think the slide mentioned, when you get prepaid orders, when you get cash on delivery on them, that adjusts in your accounts receivable, right? So how much of the benefit this year has also been because the mix of prepaid orders that you may have been processing went up? And second, also because your Supply Chain Services business, obviously also has seen a lot of improvement. You've talked about shedding a lot of clients that were not accretive there. So how much of a role did these 2 things, the client mix in supply chain and the client mix in E-com played into this working capital improvement? And from a long-term point of view, is this 11 days broadly sustainable? That's my second question.

Yes. I think the 11 days is sustainable. I mean it would be very difficult to sort of crunch it precisely for 1 quarter, right? So I be confident that it's quite sustainable overall. It's down to -- net working capital improvements arise out of systemic investments in improving your billing, improving your collections processes, improving your relationships with your clients and your customers. It's not something that you can conjure up out of thin air. To be perfectly honest, of course, what you're seeing today is the 11 days, and it looks very impressive. But I should -- I'm duty bound to remind you that 3 years ago, this was 38 days. So it's been a long and arduous journey that our teams have been on over the last few years. It is something that we were pretty confident we would get to. And here we are. Will it get better from here on? Hopefully. We continue to figure out ways of reducing NWC, which is billing faster, moving customers to prepaid. But of course, there are limits to that because customers also want credit cycles. One of the things that we can, of course, do is potentially shift to weekly billing cycles with certain customers. But then at some point, the administrative costs of managing that become higher than the benefits that you can generate out of it. So we'll see. There are further benefits to be had overall for Delhivery as a business, of course, because our Supply Chain Services business, even within our PTL business and our freight FTL freight business is total NWC days will continue to crunch over a period of time. We will do that. In SCS, of course, it has been down to customer selection. But to be perfectly honest, the only big call that we took really was to not participate in mother warehousing for quick commerce. It's not like there were any other sort of major calls that we had to take. We renegotiated contracts with a couple of existing clients, which has helped improve profitability as well. And also in SES, what's happened is as the business has matured, our own ability to bill accurately via our systems has improved. There's a period of time it takes while we integrate with the customer's billing processes. When you go and do a INR 100 crore supply chain services contract with a customer, the reality is that integrating with their back-end systems, their billing systems and so on takes a certain amount of time. So what we're seeing really is the benefits of all of that accruing to Delhivery now.

Sahil, one last question, if I can squeeze in. So good to see Supply Chain Services achieved breakeven in FY '26. And you've talked about the pipeline going forward. So this pipeline and the growth that you see from here, it would continue to be -- would it continue to be service EBITDA margin accretive? And a tied up related question in your new initiatives, you've talked about an investment of INR 130 crores to INR 160 crores over the next year. Is this going to be all OpEx? And do you have a certain burn rate in mind for all of these initiatives outside of transportation and SCS? That's my last question.

Sure. I'll key off the answer on SCS and then invite 2 of my colleagues to provide more color, which is Vani and Navneet, who runs the SCS business. But the short answer to your question, is the SCS pipeline margin accretive? The answer is yes. There is an internal hurdle rate that every SCS project needs to pass. We do not pick up projects, which do not meet that hurdle rate. And we're now pretty accurate with our assessment of what the profitability of each SCS account is going to be. There may be a short-term impact on profitability when we start a customer up, just the fundamental detail is as an example, let's say, for a customer, we need to create a 80,000 square foot site in some place. We may end up creating a 140,000 square foot site because we anticipate another conversion from our pipeline. And so for a short period of time, that cost will appear on the SCS P&L. But individually, every client will meet the hurdle rate. That we're absolutely confident about. And our pricing also, you have to understand, as we've gained experience in sectors like consumer durables and auto and e-commerce, for example, or lifestyle, our ability to price accurately has also improved over time. And our ability to source transportation the right prices has improved over time. So yes, the SCS business will continue to be margin accretive, which is one. But Vani, Navneet, both of you are on this call. And Navneet, I think you're on this call, if you are, why don't you talk through the pipeline very briefly.

Sure. Thanks, Sahil. So as you pointed out, so we've taken that journey to obviously improve our margins to where they are. We will continue to maintain a disciplined approach in client selection and to make sure we manage our internal hurdles. And if you look at the pipeline as well, it's broadly in line with our focus sectors as well. So the -- we do expect and we will maintain that the pipeline and the sectors that we look at are going to be margin accretive.

And if you can just talk about the new initiatives...

Vijit, I'll request you to go. Our next question is from Mukesh Saraf.

Congratulations on the good numbers, Sahil and team. Sahil, my first question is on the comment you made about 1P to 3P. I mean you've been telling this for quite some time that costs for 1P will be higher and probably we'll see 3Ps back or gaining back some wallet share. I think in fourth quarter, we did see that happening. The question here is, will you kind of continue to do what you're doing in terms of efficiencies and costs and wait for this phenomena to continue to play out? Or will you try to kind of try and aggressively do this so that 3Ps continue to gain share, say, within Meesho, for example. So will you just kind of wait for it to play out? Or will you look to try and get more there from, say, [indiscernible]?

Mukesh, I think this question has been going on for a bit of time, and I'll sort of take -- let me try and take a different tack to this. I think the problem is that when people look at the third-party logistics industry, I think Delhivery needs to be looked at a little differently, right? First of all, there is no customer on whom we have a very significant dependence. And therefore, we don't view our relationships with our customers as zero-sum games. And that doesn't matter whether it's Meesho or Flipkart or Amazon or whoever it is. I think they have their own reasons for ultimately continuing to persist with first-party logistics and their strategies change in response to the circumstances they face as they should, as does deliveries and everybody else's. I think the reality is that first-party logistics does tend to be more expensive than third-party logistics. And over a period of time, one believes that if rational financial decision-making is to be believed, people will move a certain amount of volume towards third-party logistics. Our job as Delhivery is merely to continue to do the best possible job that we can, which is reflected in our operating service levels, which is reflected in our operating efficiencies that we create over time. And as we do that, customers reward us with their business. So in some senses, I guess, the question sort of moat. There's a question of Delhivery either doing something violent to try and change a customer's mind or anything of this sort. I don't think that's possible. I think customers make the right calls for their business. We are obviously very happy to be rewarded with the volume growth that we have seen and with the additional volume that has shifted to us from the marketplace customers who run in-house logistics. We believe that it's a win-win for them as well because we bring down their logistics costs. We provide a high-quality service to them and their customers, allow them to scale. And not everything is about sort of immediately just how do you pass the cost back, right? For -- if you're an e-commerce retailer, in fact, the reality is you're in a significantly more competitive environment than the third-party logistics industry, because you're all competing with each other for the same customer. And so the person who delivers the best and highest quality experience at the lowest cost is the one who wins. And so in some senses, working with delivery is a win-win. And I think our big customers recognize that as well. So we will continue to do what we are doing. It doesn't make a very big difference to us even if there are changes in their sort of policies internally quarter-on-quarter or every 6 months or so. I think over the long arc of time, more volume will shift towards the third-party industry. It makes sense for that to happen organically over a period of time. And also, you have to remember that at some point, all of our customers have to also think about where their capital is best put to use. The reality is that Delhivery is demonstrating that we have the ability to generate super normative returns on our investments in building hubs and in building a linehaul network and integrating Part Truck and Express and so on. Now I think our customers will, over a period of time, realize that it makes sense for them to reward us with that. But I'll be honest, Mukesh, I've been saying this for 3 years now. I don't lose a lot of this, and I don't think our customers do either.

Sure, sure, sure. Absolutely. I get that. So the second question is kind of related. You also kind of made a comment that the market is more settled right now. So would we also kind of assume that a further consolidation in the industry? I mean, we did acquire Ecom Express, but if it's more settled, do you kind of feel that now each of the players also now have a strong -- I mean, a decent footing, and you'll probably not see any more consolidation in the industry. It will be more like an organic kind of an industry now, say, in the next couple of years or so?

I mean I'm fairly sure you have a more specific question that you're trying to ask me. So might as well.

I mean, there are not too many other players there's Express Bs and there's maybe a couple of other smaller players. But just trying to understand, is there any more consolidation left in the industry, especially with your customers like Meesho looking at it more objectively between 1P and 3P. So then there will also be enough volumes for other 3Ps is what I'm trying to understand?

Yes. I think, look, the reality is that there are now 3 listed players in the express logistics space across ourselves, Blue Dart and Shadowfax. And we have maintained that, that market structure seems sensible and appropriate. And we all also perform for what it is worth while we are all inhabitants of the express industry, we perform slightly different roles within that industry as well. But is there space for other players in this market? I've said this before? I don't think so. I don't think Express has any structural advantages compared to the 3 listed players, and I don't see a reason for them to exist.

The next question is from Aditya Mongia.

So Sahil, the first question I had was you've been talking on the call about there being room and the largest player, there's no concentration risk. Just want to kind of double-click on that. As in last year, for the full year, it was about 15%, the single largest account for you in terms of revenues. Till what level is it okay for this number to go? Do my sense is this number would have crossed 20% in this year?

Yes, I think it's a good question. Blunt answer, I think if any single customer were to cross 35% of revenues, and I don't really have a very scientific basis for that, to be honest, Aditya. But I think let me put it this way. At the moment, while it's higher than the 16% that we were at last year, we are absolutely nowhere close to even my sort of made up 35% threshold at this point in time. So it's not particularly worrying for us.

And that's the right way to think about it, right, at the overall level, not at a segmental level, right? Or do you have different...

Yes. an overall level is how we would look at it.

Sure. The second question that I had was on the Slide 8, wherein you talk about the ROIC in 2 parts to it. One is that there are different components beyond working capital. So are all of them kind of aligned to sales or how to think through them? And related question, the 15% does it have a chance to go beyond 20% or not?

Yes is the short answer. But Vivek, you're on the call. Do you want to go through this in some detail?

Yes. Aditya, so in terms of the other assets, a good part of it will be -- so the first is the tax receivables will be a big amount here. It is linked to sales. The security deposits, they are indirectly linked to sales because they correspond to our network facilities. And so -- and then there will be a few large items which are more linked to corporate overheads. So they are, again, linked to sales, everything is linked to sales at the end of the day, but not as directly linked as what's the receivables or payables is or tax receivables is. Now I think that was a factual question you asked, but did you have anything specific in mind when you said that are they linked to sales?

One could see the working capital line items move fairly fly from said INR 324 crores to INR 135 crores. So that's the question.

Yes. So the things which are -- something like a security deposit. It will also, over a period of time, improve as a days of sales because as the network utilization increases, that number also goes down as a percentage of sales. The items which are linked to corporate overheads, they will certainly go down as a percentage of sales because corporate overhead themselves will go down as a percentage of sales. So in a way, the capital intensity as a percentage of sales will go down for our transport business. Today, that capital invested is about 21.5 percentage of revenue. I would think that this easily at least has a 2 to 3 percentage points improvement potential on working capital as well as other line items. The steady-state ROICs, currently, we are at 16 percentage, but on a steady state, this number for our transport business can certainly go to 25 percentage plus. A small contribution in that journey from 16% to 25% will come from this capital intensity improvement, which I said the 21.5% can go down by a couple of percentage points. But a big factor will be our overall profitability improvement. The adjusted EBITDA, which is today at 6.3 percentage, that has a potential to go all the way up to at least 10 percentage and the drivers we have spoken about multiple times in the past, the Express and PTL service EBITDA getting closer to 18 percentage. Express is already there, but PTL getting closer to 18 percentage and the corporate overheads going down to, say, 7 percentage of revenue, that takes the adjusted EBITDA to about 11 percentage of revenue from current 6 percentage. So that will be the biggest driver of taking the ROICs from 16% currently to 25 percentage plus for our transport business.

The next question is from Abhisek Banerjee.

Congratulations on a great set of numbers. So first question is -- sorry, I joined a bit late. So in case somebody else has asked it, please excuse me. But just wanted to understand we are seeing this kind of growth in the industry...

Yes, Abhisek, we can hear you.

Go ahead, Abhisek. We can hear you.

Yes. I'm saying we are seeing this kind of growth in the industry after a very long time, right? And the last time this kind of growth kind of happened, everybody kind of went into full CapEx mode, et cetera, and we saw what happened after that, right? Now is there a chance of the CapEx intensity again increasing for the industry? And how are you thinking about it going ahead?

I'm not sure what exactly you mean by everybody in the industry went into a CapEx-intense mode, but...

No, no, no. I'm talking about, say, e-com Express and Express started really investing in CapEx. And I'm talking about FY '23 odd.

No, no, I don't think that's correct. I think they voluntarily set their balance sheets on fire, entirely separate circumstances. So that's a different issue. I don't think anybody is going to get into an operating burn environment, which is what they did the last time around and which is why one of them is no longer here with us. But if your question is broadly because we are seeing growth in our Express network, is our capital intensity going to change? The short answer is no. And the reason for that is that fundamentally, if you look at our CapEx, not that much of it is indexed to the Express business any longer. Our growth in tonnage from the PTL business and the heavy part of our Express network has been high. And that's sort of been driving overall capital intensity. And despite that, you can see that the trend of CapEx as a percentage of revenue has floated down from, I think, about -- if I'm not mistaken, Vivek just help me out, 7.2% of revenue about 3 years ago to about 4.7% today.

[indiscernible]

Sorry, 7.8% to 4.7%. So absolutely, no, we do not anticipate that because we are seeing larger volumes, there will be a very big change in our capital intensity. I think we've learned how to improve our network utilizations. That would continue. And as -- we will -- will we have to launch more mega gateways over a period of time? The answer is probably yes. But as a percentage of our base capacity, that's going to be now smaller and smaller than it was at the start. So that's one. And in terms of whether other players in the industry will dial up their capital intensity, I think -- I don't think that's very likely because most of them don't run integrated networks in the first place. I think there's some CapEx that will be required by players who want to enter sort of the heavy space or who want to quickly ramp up overall sortation operations or so on. I'm not very sure. But if your question is, are we going to see sort of irrational pricing the way we saw 3 years ago or 4 years ago, I think the short answer to that is no because everybody has sort of seen that movie and knows how it ends.

Got it. And you don't expect, say, an Amazon also to get aggressive, I mean, given their new -- I mean, they did kind of do some press announcements, et cetera. You don't see any renewed threat from there, right?

If only businesses could be built off of press releases, but I don't think so.

Got it. And just one last question. What do you think one should be building in for Express growth over the next couple of years? Because there seems to be some sort of bounce back in the e-commerce business overall, even if we net off the effect of in-sourcing going down. So what is the right kind of a number to kind of think from a medium-term perspective?

On a much lighter note, I'm thrilled about the fact that we finally have a listed e-commerce company in India who is much better positioned to answer what industry growth for e-commerce will look like over the short and medium term compared to the downstream beneficiaries of it like delivery. But on behalf of our customers, I can tell you that we anticipate that they should see nothing less than sort of 20% kind of growth rates, 15% to 20% growth rates for the industry as a whole. That's at least what our numbers seem to suggest. Inter share, of course, of different customers keeps changing basis whatever their objectives are for the financial year. But I think e-commerce as a whole growing at 15% to 20% we've consistently maintained that we think that, that in India is the likely growth rate into the medium term.

The next question is from Ankita Shah.

My question is on your planned investments on new businesses like Delivery Direct, Delivery Rapid. Now how are you looking at the scale up on those businesses? And what kind of investment can we expect in the next couple of years? And how do you see it panning out in future?

Well, I mean, very optimistically, Delhivery Direct is our intracity on-demand logistics service. via the delivery application, we provide not just the intercity service, but also the intracity service. The intercity service is now live in 6 cities. The intercity service has been live for a while. The intercity service, of course, is really no different from our parcel service, except it's targeted at very small businesses and consumers and is sort of margin accretive. The reality is when combined with our intracity business, Delhivery Direct actually as a whole is probably profitable, but we report the intercity segment within our Express vertical as a whole and intracity separately. Why we're doing intracity is pretty simple. It's the same logic as what we have used for all the businesses that we have built over time, which is that we look at whether delivery itself, first of all, is a large consumer of the service that we intend to launch. And the answer over here is yes, because we ourselves require on-demand logistics across our distribution centers, our service centers, our fulfillment centers when we're delivering, for example, for our SCS customers and so on. And so it made sense for us to build the on-demand intracity logistics capability, which is what we are in the process of doing. And then, of course, as we've done in the case of PTL in the past, in the case of FTL in the past, the idea is when a service reaches a certain amount of critical demand that we're convinced we can generate ourselves, we also externalize it and open it to external customers, which is what we're in the process of doing. At this point in time, I think in fiscal '26, we have invested about INR 76 crores, a large portion of which has been towards the on-demand intracity service. Our anticipation of the investment for fiscal '27 is broadly between about INR 130 crores and INR 160 crores that we've guided to in our shareholder letter as well. I think this gets us to north of about a INR 200 crore run rate in terms of on-demand intracity logistics. This will, of course, not include the services that this division provides to delivery internally as well. So this is purely the external GMV that we anticipate we will be able to generate. So pretty optimistic. I think on-demand intracity is a very large space, and it's a very underserved space. There are a few players in this quarter has obviously done a very good job servicing this space. And we think there's room for delivery as well to play.

Would you be able to quantify how big would be the TAM in this segment?

No. And I think as with all things in India, nobody really knows what all these TAMs actually are. I can just tell you that it's very, very large. There are millions of commercial vehicles that fly across all of these cities. You can multiply them whatever number you think is appropriate for the number of LCVs that are there in India, multiply it by maybe INR 2,000 a day, and that's going to end up being the TAM. But suffice to say, it's a very large sort of single, if not low double-digit billion dollar market.

The next question is from Atul Bose.

Congrats on a good set of numbers. So I have 2 questions specifically. First, on the FCF positivity. I just wanted to know that while in OCM, there will be a benefit from e-com acquisition. So just wanted to get a sense that if we exclude the benefit from this, will we still be FCF positive in FY '26? That's my first question. And second question is on your fleet size, which has seen a drop on a Q-on-Q basis as well despite doing a higher PTL tonnage. Is there like an increase in our tractor trailer efficiency? Or is this like deliberate like rightsizing after the integration? Those are my 2.

I'm not sure I understood your first question. Your first question is if Ecom Express Acquisition -- sorry, what impact does Ecom Express have?

After consolidation, there will be a benefit from, let's say, the volume growing and integration, if that would have not been there in the OCF will be still positive that I wanted to know.

So if I understand your question right, you're saying if we had done lesser volumes than we had done today, would we still be free cash positive?

Yes.

I mean that has nothing to do with Ecom Express, right? I mean if we had done significantly lower volumes with significantly higher CapEx, we would not have been free cash positive. The important thing over here is that we are free cash positive.

All right. And on the second...

If I may add here, Atul, actually, the reality is other way around. E-com Express related costs we have incurred, the integration cost, the OCF has actually been brought down by those costs. Had there not been those costs, our actual core business free cash flow would have been meaningfully higher than the INR 89 crores number.

Yes, yes. That's what I wanted to know actually that the acquisition has been bringing down the cost or not. And on the second question, like are you seeing any efficiency in tractor trailers -- or this is the like fleet size on a steady-state basis?

I'll take that. I think you are referring to the KPI slides in the appendix, and you are referring to the fleet size daily average number going down from 21,000 to 20,000. No, this is just the vendor fleet that we use on a daily basis. And we use 2 kinds of a fleet. One is actually the contracted monthly fleet and then the other is a variabilized fleet where the partners bring their own vehicles and we pay them on a per kilo basis. This number includes only the first type of a fleet. the mix between the 2 kinds of fleet keeps changing quarter-on-quarter depending on the geographical mix of volumes and depending on client mix of volumes. And so the only reason you see this fleet base going down is because the share of that per kilo fleet has actually gone up. It has nothing to do with our tractor trailers that's not included here. Our tractor trailer count has actually gone up Q-o-Q.

I'll ask a question. So with crossing INR 10,000 crores in revenue now in this year and over the last 3 or 4 years, what we've seen is that you've really dominated the road side of things. Do you think the organization is thinking about getting into other modes of transportation? We've seen that you made an entry into air, but is it right time to get into maybe something beyond road in a big way? Or do you think that road still offers a very large opportunity?

It's a good question, Dhruv. I think road still offers a very large and untapped opportunity for delivery. No matter which economy you look at around the world, road is the predominant sort of transportation option. And specifically in India, the relative advantages of road are -- let me put this, there's a general belief that as you sort of start getting to mid and long distances, for instance, that rail and air can become more competitive. One of the advantages of India is that our distances are not large enough for alternate modes of transport, whether it's rail or whether it's air to be very significant. The trucking times themselves are actually not that long. You can truck from Delhi to Bombay, for example, on our tractor trailers within about sub-20 hours. And so relatively speaking, there's no massive incentive to move towards rail. The other problem when you look at rail in India, and I'll go -- I know you didn't ask the question specifically about rail, but I'll break it up as road, rail and air. So when you come to rail, the other problem in India, of course, is that the railway system and when you look at where rail heads are, for the most part, they're not designed around a cargo carrying capacity. They're really designed to ferry passengers. Of course, if you were doing things like commodities or if you were doing agri, captive rail network is an entirely sort of different proposition, but that's not a business that Delhivery is in. For the business that we are in, I think road is predominantly sort of going to continue to remain the focus. In terms of air, it's an interesting question. I think Delhivery certainly does have the base loads across our entire network to make a larger air network viable. We continue to fly commercial passenger belly. And at the moment, that continues to sort of suit our overall requirements. Also, the problem in air, of course, is that running a subscale fleet of airfreight doesn't make any sense. So Delhivery by itself entering air freight would not be very sensible because the cost of running a 4-plane network or whatever a 6-plane network would be too high. I think over a period of time, we will look at partnerships with airline companies. and see if we can get them to work with us on strategic ventures in air cargo. I think that's something that we do continue to explore. Of course, in India, choices are sort of relatively limited. And of course, the reality is that right now, the airlines industry has a lot to think about. So it's not an immediate priority. We'll continue to do passenger ready, and we'll continue to expand the routes that we operate in.

And my second question is on the PTL side of things. So over the last 2 or 3 years, we've seen that you've done extremely well in terms of gaining market share, but there's still some gap between you and the #1 player. So I just want to understand in terms of capability, in terms of positioning, do you think that now you have all the ingredients in place to kind of chase that? Or you think that there are certain things that you still want to add?

No, I think the answer is sort of in your question itself, right? The fact that we have everything that we need to achieve a leadership position in PTL is something that we've demonstrated over the last 3 years, both in terms of being the fastest-growing player. Our business, again, Varun is on this call, so he'll talk through specifics. But I think we've gone from about 2.5 years back or 2 years back, maybe sub-300,00 tonnes of freight from like 280,000, 290,000 tonnes of freight to maybe something like 550,000 tonnes of freight in this quarter. And our gross margins have gone from 14% to 28%. So we've doubled margins and grown the business 1.8x over the last 2.5, 3 years. So obviously, the capabilities that we have are valuable to the market. We're pretty confident that we will continue to be the fastest-growing player in this space. But Varun is on this call, and this is an important business, and it's a good question. So he should certainly weigh.

So I think Sahil, you have answered it. I think, Dhruv, on this, the playbook is there, right? The playbook, it's not a 1 or 2 quarter affair. It's been 2, 2.5, 3 years of us consistently doing that. We just have to, I think, keep on repeating that, get the BD guys at the right place, reach out to the right customer, keep on having those conversations, make sure a customer who, let's say, has 500 units of business to offer starts with 2, 3, 4, 5 units, whatever it is increase share of wallet there and get into that cycle with every possible customer who's out there. So I think in terms of product or service, whatever you want to call PTL, I think there, we have a fair bit of control on what's happening. We are able to gain share of wallet and do the right thing in terms of margins at the same time. We just have to keep on doing what we have been doing over and over again at multiple geographical locations.

Great. Thanks a lot, Varun and Sahil. That brings us to the end of the call. So Sahil, opening -- any closing comments?

No, thank you, Dhruv and Ambit team for hosting us this evening, and thank you to everybody who's joined the earnings call. I know it's a Saturday evening. So I really appreciate everyone joining and for your questions. Overall, very satisfied with the closing to FY '26, getting past INR 10,000 crores is obviously one milestone. The second was 1 billion orders in e-commerce. The other was 2 million tonnes of freight in PTL. And the biggest one that we're very happy about is having turned free cash positive. So several of the themes that we've been talking about over the last 3 years. Hopefully, this is a culmination of all of those moves, and you can see that they've played out. So we're well set up for fiscal '27. I know it's been a volatile start. So we'll see how it goes. Thank you.

Thanks, Sahil. Everyone, you may now disconnect the call.