Can Ecom Express’s IPO Succeed While Delhivery’s Stock Struggles?

Ecom Express, a business-to-consumer (B2C) logistics company, is getting ready for its Initial Public Offering (IPO). However, the company is facing many challenges. Its revenue growth has been slow, and it depends heavily on one customer, Meesho, which contributed more than half of its earnings in FY24. Additionally, the company is still struggling with profitability, despite reducing its losses from ₹428.1 crore in FY23 to ₹255.8 crore in FY24.

To address these problems, Ecom Express appointed Ajay Chitkara as the new CEO in September 2023. Chitkara was previously the head of Airtel’s enterprise division and is known for guiding the business through difficult times. However, he has a tough job ahead, especially since Meesho launched its own logistics service, Valmo, which could take away a big chunk of Ecom Express’s business.

The Telecom Connection

When Ecom Express was looking for a new leader, they chose someone from the telecom industry instead of the logistics sector. This was because the telecom industry had also faced major changes, with many companies exiting or merging. Chitkara had successfully navigated this landscape and grown Airtel’s enterprise division into a ₹22,000 crore business.

However, the logistics industry is very different from telecom. Ecom Express faces stiff competition from larger players like Delhivery, Xpressbees, and Blue Dart. All of these companies have their own fleets and offer various services, including business-to-business (B2B) logistics. In contrast, Ecom Express has focused solely on B2C logistics, making it more vulnerable to competition.

Revenue and Profit Challenges

Ecom Express’s revenue grew by only 2.2% to ₹2,609.2 crore in FY24, and it relies heavily on Meesho for over 50% of that income. This dependence is risky, especially now that Meesho has launched Valmo, a logistics platform that could reduce the need for Ecom Express. Valmo aggregates logistics providers and chooses the cheapest option for deliveries. Currently, Valmo handles about 20% of Meesho’s deliveries, and this figure is expected to rise.

In its draft red herring prospectus (DRHP) for the IPO, Ecom Express acknowledged that Valmo is a challenge. Unlike Amazon or Flipkart, which use their own logistics services despite higher costs, Meesho is focused on cutting costs, which could hurt Ecom Express’s business.

The Competition with Delhivery

Ecom Express’s biggest competitor, Delhivery, went public in 2022 but has struggled on the stock market. Delhivery’s stock is still trading below its IPO price, which raises questions about whether Ecom Express can attract investors. Like Delhivery, Ecom Express is not profitable, but it has worked on reducing its losses and improving efficiency.

Delhivery also faces the threat of Valmo, but it has a more diversified revenue stream and doesn’t rely as heavily on Meesho. This makes Delhivery better positioned to handle changes in the market. In contrast, Ecom Express must find ways to reduce its dependence on Meesho and grow its customer base.

Looking Ahead

For Ecom Express, the road to profitability and success in the IPO will be challenging. The company has been focusing on operational improvements, such as reducing delivery costs and increasing the number of customers. It has also been cutting fixed costs by relying more on gig workers, who made up over 70% of its deliveries in FY24.

Chitkara will need to continue making these improvements and find new ways to grow the company’s revenue. One possibility is expanding into B2B logistics, which its competitors already offer. If Ecom Express decides to move into this area, Chitkara’s experience from Airtel’s enterprise business could be valuable.

In conclusion, while Ecom Express has made some progress, it still has a long way to go. The company will need to convince investors that it can diversify its revenue streams, reduce its dependence on Meesho, and become profitable. With strong competition and market challenges, the success of its IPO remains uncertain.