Delhivery cofounder and chief executive officer Sahil Barua and Sandeep Barasia, the chief business officer, told ET in a post-earnings call that its operating leverage would kick in even as it continues to chase growth.
“Growth and profits are not conflicting objectives for us at an operating level. The challenges that investors rightly have is if you are losing money at the unit level. Now, we are investing in capex. It has come down to 6.2% revenue for fiscal year 2022. We expect that to stabilise at close to 5%. Our operating Ebitda is close to 4%. So if operating Ebitda goes above capex the company starts generating cash flows,” Barua said.
Barasia added that operating leverage kicks in when a company has fixed costs that must be met regardless of sales volume. He said that the company will be able to better utilise its fleet, capacity, and labour by chasing more revenue, thereby improving profitability.
Public-market investors have been wary of new-age firms’ ability to show profits or a path to profitability. For the March quarter, Delhivery
reported net loss of Rs 119.8 crore, nearly the same as in the same quarter a year ago.
“The way we look at our business is that it is sensitive to scale, and as we get larger the economies of scale kick in,” said Barasia. “Every metric that we look at is actually increasing and has done meaningfully (well) over the last few years. Our utilisation of trucks is getting superior and better, plus we are moving to larger formats of truck, the 46-footer over the 36-footer. (Because of this) immediately the efficiency goes up because things like the cost of the driver remain the same no matter which truck they are driving.”
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Barasia, who joined Delhivery more than seven years ago, said the company is better placed to face inflationary pressure on both fronts – fuel and labour.
It has passed on the fuel price hike to its business to business (B2B) clients while it is able to absorb the cost better in its B2C business. “Fuel price hike is a relative problem everyone faces, but we are already operating in a much more efficient way compared to other companies in the space,” he said.
Barua added that Delhivery has automated several functions in its warehouses and sorting centres and is thus able to tackle the wage inflation that is plaguing Indian tech companies.
“The broader message is that wage inflation in the medium term is going to be inevitable and in our business planning we have factored in wage inflation,” said Barua. “Companies that don’t react to wage inflation are going to face a shortage of workers.”
ET reported about the shortage of gig workers on May 11.
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