Delhivery Ltd (NSE: DELHIVERY) Q3 2025 Earnings Call dated Feb. 07, 2025
Corporate Participants:
Sahil Barua — Managing Director and Chief Executive Officer
Analysts:
Sachin Salgaonkar — Analyst
Gaurav Rateria — Analyst
Lokesh Maru — Analyst
Mukesh Saraf — Analyst
Abhisek Banerjee — Analyst
Sachin Dixit — Analyst
Unidentified Participant
Presentation:
Operator
Hi, good evening, everyone. Welcome to Q3 FY ’25 Earnings Call of Delivery Limited hosted by Macquarie. Before we start, Delivery 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 fact 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 Barwa, MD and CEO; Mr Amit Agarwal, CFO; Mr Ajit Pai, CEO; and Mr Vivek Pabari, Head of Investor Relations at Delivery. As a reminder, all participant lines will be in listen-only mode and participants can use the raise and feature to ask any questions post the opening remarks.
I now invite Mr Sail Barwa to take us through the key highlights of the quarter post which we’ll open up for Q&A. Thank you, and over to you, Sail.
Sahil Barua — Managing Director and Chief Executive Officer
Thank you,. Thank you, Macquarie team for hosting us this evening and thank you all for joining us on this Friday evening for discussing of our Q3 results. Before I begin, you must-have seen the news already. I’d like to place on record a warm welcome to two new independent Directors on the Board of Delivery, Mr Sameer Mehta from Board, Boat and Ms Amita Thapar from MQO Pharmaceuticals and an announcement that Ms Mani Venkatesh will be joining us as Chief Business Officer of Delivery from the 1st of March. We’re very excited to have all of them on-board.
With that, getting into results for quarter three, broadly speaking, as you’re aware, this is the peak quarter for e-commerce given the festive seasons. It’s been a good quarter for us overall. The trend of profitability for the company, which we began in-quarter one and quarter two has continued into quarter three, despite some headwinds in the industry overall and continued muted growth in online commerce volumes. In terms of a quick snapshot of numbers, we closed quarter three fiscal ’25 at INR2,378 crores of revenue from the services, which represents a growth of 8.6% quarter-on-quarter and a growth of 8.4% from the same quarter last year. We delivered 206 million packages in our express e-commerce parcel delivery business and 242 million, including return parcels, which represents a quarter-on-quarter growth of 11.2% and a year-on-year growth of 2.4%.
Our Power Truckload business continued to be strong through quarter three, which typically is not a peak quarter for the PTL business. We delivered 412,000 tons of freight in-quarter three fiscal ’25, which represents nearly a 17% growth Y-o-Y and a slight decline of 3% quarter-on-quarter. Overall EBITDA for the company stood at INR102 crores or at 4.3% in-quarter three fiscal ’25, broadly flat versus quarter three fiscal ’24. Our PAT margin came in at INR25 crores in-quarter three fiscal ’25 at about 1% broadly breakeven, doubling from PAT profit of INR12 crores or 0.5% from the same quarter last year. The company continues to be well-capitalized. We hold INR5,488 crores of cash-and-cash equivalents on the balance sheet. A quick snapshot of our key operating metrics. Reach continues to stay stable. We delivered to 18,780 pin codes across the Country as defined by the Indian Post. We continue to deliver to the 220 countries around the world via our partnerships with FedEx and Aramex. Total number of active customers for the company increased in-quarter three with deeper penetration within the D2C segment, the SME segment within e-commerce and the SME segment within the part truckload business. We now serve close to about 39,775 customers. Infrastructure in-quarter three had grown to 20.6 million square feet. However, this includes close to about 0.5 million square feet of temporary infrastructure that’s built-up for the peak season and is then let go off in-quarter four. We continue to operate 112 major gateways and hubs across the country, including 45 automated sort centers equipped with 65 sorters. Total number of freight service centers have remained broadly stable at 130 freight SCs across the country and our total number of delivery points stood at close to 4,350, broadly stable from quarter two with a slight shift in mix between cell phone and partner centers with a larger focus on-cell phone centers across the country. We continue to operate 160 processing centers across the country as well. Overall team size in-quarter three stood at 67,600 with about 40,000 partner agents across last mile operations and a daily fleet size of close to about 16,700 vehicles. In terms of overall financial performance, our total revenue from services stood at INR2,378 crores, a growth of 9% Q-o-Q and 8% Y-o-Y compared to INR2,190 crores of revenue in Q2 fiscal ’25. This is the peak season for the Express Parcel business and its contribution to our overall revenue stood at 63% versus 59% in the previous quarter. The power truckload business is at 19% of total revenues in-quarter three fiscal ’25 and compared to the same quarter in the last financial year, you can see the impact of growth in the PTL business, where it was 17% in-quarter three in the previous year and 19% this year. We continue to see growth in both the Supply Chain Services business and some growth in the truckload business as well. The Express Parcel business grew 15% quarter-on-quarter from a revenue of INR1,298 crores in Q2 fiscal ’25 to INR1,488 crores of revenue in Q3 fiscal ’25, a year-on-year growth of about 3%. Our total shipments grew by 11% between quarter two and quarter three from 185 million shipments to 206 million shipments in Q3 fiscal ’25, broadly flattish, growth of about 2% compared to quarter three of fiscal ’24. In terms of our truckload revenues, we’ve grown revenues Y-o-Y by 22% from INR379 crores of revenue in Q3 fiscal ’24 to INR462 crores of revenue in Q3 fiscal ’25, broadly flattish between quarter two and quarter three. Freight tonnage has grown 17% in the same-period Y-o-Y from 354,000 metric tons of freight in Q3 fiscal ’24 to 412,000 tons of billable freight in Q3 ’25, broadly flattish from 427,000 tonnes to 412 between Q2 and Q3. Truckload business has remained broadly flat. We’ve been at that INR155 crores to INR160 crore mark since the same time last year. The Supply Chain Services business continues to show robust growth. We’ve grown from INR173 crores of revenue in Q3 fiscal ’24. Revenues have grown by nearly 30% to INR22 crores in Q3 fiscal ’25, driven by both growth in existing accounts as well as signing on new accounts and a quarter-on-quarter growth of 12% between Q2 and Q3 as well. The cross-border services business has grown Y-o-Y from INR39 crores to INR43 crores. However, there’s a sequential decline from 59 to 43 between Q2 and Q3. A quick snapshot of overall service line-wise profitability. As I mentioned at the top, revenue from services has grown from INR2,172 crores in Q1 fiscal ’25 to INR2,378 crores of revenue in Q3 fiscal ’25. Total service EBITDA between these quarters has remained broadly flat. Service EBITDA margins are range-bound in the close to 11% range overall. The Express Parcel business saw marginal growth in revenues between Q2 in-service EBITDA between Q2 and Q3 with growth from INR196 crores of service EBITDA in Q2 to INR232 crores of service EBITDA in Q3, an improvement in the overall service EBITDA margin from 15.1% to 15.6%. Margins were slightly depressed compared to the same quarter last year, owing to a buildup in fixed costs and a certain inflation in fleet costs, which we typically see in this Q3 period. The Part Truckload business’s service EBITDA margin has improved from 2.9% to 3.8%, which is the highest service EBITDA margin that this business has generated in the last 11 quarters. Sequential improvement will continue. We generated INR18 crores of service EBITDA for this business in Q3 fiscal ’25. Supply Chain Services business has returned to service EBITDA profitability after Q2 from a loss of INR9 crores in Q2 fiscal ’25 to a profit of INR5 crores in Q3 fiscal ’25. Overall, corporate overheads have remained broadly flat for the last 11 quarters. They are currently at INR211 crores, which represents 8.9% of total revenue versus 10.2% at the start of the year. And the broad sort of glide path down towards 6% of revenues continues. Wages have remained broadly flat, marketing expenditures have remained flat, technology investments remain flat and GNX expenditures remain flat as well. On a net basis, therefore, adjusted EBITDA has come in at INR45 crores, or close to 2% of revenue for Q3 fiscal ’25, a growth of INR35 crores versus Q2 fiscal ’25 and broadly flat versus Q1. Overall PAT has improved to INR25 crores for Q3 fiscal ’25 or 1%. A quick snapshot of overall PAT growth for the company. As you can see on the right, we’ve had three consecutive quarters of positive PAT, from INR54 crores in Q1, INR10 crores in Q2 and INR25 crores in Q3 as opposed to only 1/4 of PAT profitability in the previous financial year, which was Q3. In terms of overall quarter — quarterly financial performance, as I had mentioned, Q3 fiscal ’25 revenue from services came in at INR2378 crores, a growth of about 8.5% versus the same quarter last year. Total freight handling and servicing costs have come in at INR1,751 crores versus INR1,572 crores, a growth of about 11.4% Y-o-Y, largely driven by increases in fleet expenses. Our other costs have remained broadly flat or declined in this period. Total expenses came in at INR2,451 crores versus INR2,290 crores in the same quarter last year and in Q2, a growth of 7%, less than the growth in revenue, which leads to net PAT of INR25 crores for Q3 fiscal ’25, a growth of INR15 crores versus Q2 fiscal ’25 and a similar growth versus Q3 fiscal ’24 with overall EBITDA at INR102 crores or 4.3% of revenue versus INR109 crores in the same quarter last year and INR57 crores versus Q2 of this financial year. It’s a quick snapshot of our results. With that, I’d like to pause and very happy as usual to take questions from all of you.
Questions and Answers:
Operator
Thank you, Sail. We’ll now start with the Q&A. As a reminder to all the participants, please use the raise and feature to ask any questions. And in the interest of time, please limit the number of questions to two. With that, we’ll take the first question from Sachin. Sachin, please go-ahead.
Sachin Salgaonkar
Hi, thank you for the opportunity. I have three questions. First question,, more on the margins for the Core Express business. What should we think about the steady-state margins for this business and how far are we from that number? And does anything change with one of the top operators sort of in-sourcing in terms of how you guys look at a steady-state margin?
Sahil Barua
Yeah. Sure. Sachin, you want to go through all three questions?
Sachin Salgaonkar
Sure. Sure, sure. My second question again is on margin, but on more on the PTL side. Last two years, if you see, we have some solid improvement in the margin, but versus that last 3/4, we have not seen a sharp improvement. So just wanted to understand the trend of margin improvement going ahead, i.e, it should be gradual or we should see a good bump-up there. And lastly, just wanted to know a bit of an update in terms of how the two are rapid commerce is scaling and your general thoughts in terms of how big the D2C operator contribution could be in the medium-term to volumes for delivery.
Sahil Barua
Great. Thanks, Sachant. So let me address them one-by-one. In terms of margins, the overall steady-state margins for the business, we think will remain in the range that we’ve spoken about before. I think for the Express Parcel business, service EBITDA margins will remain in the 17% to 20% range. As I mentioned, that obviously assumes that there will continue to be sort of pricing efficiencies that are passed on by delivery. But the reality is, I think we’re reaching an industry structure where potentially further price discounts do not have to continue to be passed on to customers. So the reality is this could evolve to a world where margins are slightly higher as well . So nothing sort of changes on overall steady-state margins for the parcel business. I think the Q3 numbers obviously are a little lower than they were at the same time last year. And partly the reason is, one is a slight expansion in the fixed-cost. We had our Bangalore mega facility, which went live, which has contributed rent expenses in this Q3. But the other equivalently, I think in this Q3 was a slight bump-up in overall fleet sourcing costs, which was a little unanticipated for us at the start of the quarter, but those have normalized since. And so I don’t think there’ll be any sort of structural change to the Express margins. In terms of the insourcing impact, I think let me sort of answer this two-ways. One is, obviously, there’s been more insourcing. I think from a and Amazon perspective, the extent that they’ve insourced has sort of remained steady through the year because they’ve already sort of reached the logical sort of conclusion of their in-sourcing. The reality in the last two years has obviously been the increased in-sourcing by Mishow towards its Valmo platform. I think that’s now reached a fairly large percentage of their total volumes. And so I’m not sure that that will continue to have too much impact. But I think what it has done over a period of time is that it’s essentially eroded the profit pool for the express industry as a whole. And even if you include sort of the first-party players, when you sum-up, as I mentioned before, the total profitability of this industry delivery is more than 100% of the profit pool. I’ve set this in Q2 and the reality in Q3 is that our share of that profit pool has actually increased as opposed to Q2. So our belief is that cumulative losses in this industry outside of delivery have increased between Q2 and Q3. So I suspect that we should see — I mean, it stands to reason that we should see correction in this, either in the form of increased pricing from other three peers who are finding current pricing unsustainable, which is good for delivery because either it manifests with increased volumes or increased price. And so actually, I think the reality is the insourcing impact on profitability should disappear in a couple of quarters. On PTL margins, I think the reason why you’re not seeing a more sharper uplift is because as I had mentioned, one of the sort of benefits and sort of one of the disbenefits perhaps in some senses of running the integrated network is that when investments are made to essentially boost express capacity, the PTL network shares a certain percentage of that cost because we run on the same trucks, we run-in the same hubs. And in Q3, which is the express peak season, we obviously have to invest towards the express business. And so the PTL network has taken some of those costs. I think if you were to eliminate those, the PTL margin uptick would be even higher. I think what we are very happy about is that despite the investments in Express, as we look at the PTL margins, there has been an expansion of margins. Our yields also have gone up Y-o-Y and we expect that this trend will continue. The PTL business will continue to grow. In fact, December was our highest month ever since the integration with Spoton at close to about, if I’m not mistaken, about 147,000 tons of freight and January has continued more or less in the same vein. So overall, I think PTL margins are in good shape and will continue. In terms of the two rapid commerce business, we’ve launched and are currently live in three cities. We’re live in Bangalore, we’re live in Hyderabad, we’re live in Chennai. We have gone live with two core customers with another 15 scheduled to start at some point over sort of this quarter and the early part of the next. Volume uptick in most of the dark stores actually has been pretty reasonable given that we started barely about 45 days ago. I think the first set of dark stores are already approaching close to about 500 orders per day, which is actually pretty impressive given that these are from standalone D2C brands. And I think the breakeven point for these dark stores, obviously is much lower than the breakeven point for sort of the broader — commerce industry. Broadly speaking, I think we breakeven at close to about 700 to 800 orders per dark store per day. And so we’re nearly there. That said, as I mentioned before, I think Rapid commerce is sort of more a feature. It’s an add-on product for the top eight cities for specific SKUs to specific customers. I think broadly, if I look at it, I expect that this business will add maybe somewhere between INR80 crores and INR100 crores of revenue through delivery through the financial year and the margin structure will broadly be similar to the express business as a whole. So it’s an interesting business. It’s a good capability for delivery to build. It helps us sort of serve our D2C customers and their customers much better, but it is ultimately relative to the broader scale of e-commerce still a fairly small opportunity. In terms of contribution of D2C overall, I think one of the things in our express volumes that obviously we don’t break-up, but three segments that we track very carefully. One is obviously direct-to-consumer brands, whether they ship-through us directly or whether they ship-through us or via the form of an aggregator of some shape or form. And the other obviously is we track our direct SME business. The heartening sort of piece of our volumes has been that our direct-to-consumer business has grown close to about 30% Y-o-Y and our SME business has actually grown over 50% Y-o-Y. So we continue to have a pretty compelling proposition to that group of customers. And our belief is as we give them sort of the right kind of pricing, the right kind of reach and the right kind of service quality, there’s no reason to believe that these segments within e-commerce won’t be a more material portion in the medium-term.
Sachin Salgaonkar
Yeah. Thank you,, for the detailed answers. One quick follow-up. This is regarding your comment in terms of boosting the express capacity. We’ve seen investments into the capacity on Express every year to a certain extent and I presume that should continue going ahead as well. So does that also mean that the PTL margin improvement should also be at the similar pace going ahead as well?
Sahil Barua
No, I think your margins actually will improve at a faster rate. So a couple of things will happen. One is, as I mentioned that we’ve continued to sort of improve overall yield. If you look at it yield, I think over a six, seven quarter period has gone from about INR10.3 per kilo to nearly about INR11.11 to INR11.1 rupees per kilogram. So I think that is part of what will continue to drive growth in margins. The second, of course, is the heavier loads that are coming into the network or improving utilization of the core tractor-trailer network as well as outside the tractor-trailer network. And so that margin uplift will come.
And the third thing, of course, is that we’re also, as I mentioned in the past, our reseller program is becoming larger. We are starting to target retail markets and smaller PTL markets, which sit on reverse line-haul routes where essentially the incremental margins are much higher because these loads will typically flow-in on-half empty trucks. So for instance, in-markets like Kanpur, in-markets like Nagpur, markets like, etc. And so actually margin uplift will become higher. So the PTL margin uptick will be faster than the.
Sachin Salgaonkar
Great. Thank you.
Operator
Thank you. We’ll take the next question from Gaurav Rateria. Gaurav, please go-ahead.
Gaurav Rateria
Hey, hi. I hope I’m audible.
Sahil Barua
Yes.
Operator
Yes, please go-ahead.
Gaurav Rateria
Yeah. Thanks for giving me the opportunity. I have four questions for you, Sahil. The first on Express Parcel service EBITDA margin, not just being lower for this quarter, but also on nine-month basis, it seems that the operating leverage has played negatively given the volume growth has been muted in low-single digit. Is this also driven by we becoming more heavier on our owned share of the vehicles in the network and which is why it kind of played negatively and this can kind of reverse very sharply as volume growth kind of improves? That’s question number-one.
Question number two is on infra addition, has that been in-line with our overall volume growth in the system or we have built more spare capacity in the last nine months compared to the last year, which kind of allows us to go slower on capacity building for the next year as we grow revenues? The third is that on PTL, what we can do to further accelerate growth in this business or we should look at this as 15% 20% volume growth business when the industry is barely growing at high-single-digit?
And lastly, on the competition, you kind of gave some color on the — the — that they are bleeding a lot more and we are more than 100% of the profit pool. But what makes us believe that they would be required to take some pricing action which could favor us in terms of volume share in the near-term or I mean, this can go on for like maybe one or two more years right before anything of that sort happens. So this could be a low burn period or slower move to kind of benefit delivery from a medium-term perspective.
So these are the four questions. Thank you.
Sahil Barua
Sure. Thank you. I’ll address each of them in order. Express on service EBITDA, I think the Express service EBITDA in Q2, Q3 were muted and you’re right for the nine months have been slightly muted compared to the previous year, largely because some of our fixed investments, especially one of them being the Bangalore facility coming live and redundant facilities being there. So that’s one of the overhangs on service EBITDA margins.
And in Q3, specifically, as I had mentioned, at the start of Q3 with the volume surge in the first sort of week of October, I think fleet costs went up a little more than we expected in the key metro cities. And I think the learning for us really is from the next quarter on, one option is to see whether we get into better fixed contracts as opposed to sort of doing spot vehicle placements in that week. So I think that’s ultimately caused an overall drag of about INR12 crore to INR15 crores on the earnings. But otherwise, as I had mentioned, structurally nothing changes on the Express service EBITDA margins. We see no reason to believe that we will not be in the 18% to 20% sort of range overall. In terms of infra addition, I think broadly, infra addition has been in-line with capacity. In fact, if you look at our capex as a percentage of revenue , we are in fact ahead of the guidance that we’ve previously provided to Anderson investors. I think this year, we will end-up with capex as a percentage of revenue being 5.6% or lower and this has been declining Y-on-Y. We’ve indicated that over the long-term, we expect capex to settle at between 3.5% and 4% of revenue, which is largely going to be sort of maintenance capex, upgrade capex that we need. I don’t think we have any very significant capex that’s planned for the next year. And there’ll be some routine hub upgrades, but outside of that, nothing very major coming out. We have sufficient capacity in the network. So in that sense, I think you’ll see capacity utilizations also going up in the next financial year. On PTL, absolutely not. The business is not expected to grow at just sort of the 16% to 20% range despite the fact, of course, that the rest of the industry in the last quarter has been flattish or sort of very low single-digit sort of growth numbers. I think our ambitions are much larger. The PTL market, as I mentioned, is a deeply unorganized market and delivery is really growing into that unorganized market and our ability to grow, therefore is not constrained by other players in this market. Our own ambition internally is certainly to grow the business overall at nearly 25% to 30% in the next financial year and I don’t see any reason for not being able to achieve that. I think as I’ve mentioned in the past, picking the right markets to grow and picking the right clients, picking the right pricing is important and that’s something that as you can see, we’ve been getting better at quarter-on-quarter. So there’s no reason for our growth to not be at that 25% to 30% benchmark for the next year. In terms of competition, you know your question is valid. That said, I think in this industry, we are reaching sort of in some senses a reckoning. The reality is that last year, we had the same discussion in terms of how long can these losses sustain. And I think the reality is that incremental capital flow into this industry is now going to be severely constrained. And I think in the interest of sort of sustaining themselves as going concerns, I think competition is going to have to look at sort of their business model. So I don’t think that additional capital sort of will be available. So I’m not very confident that the industry structure that we currently have will continue. I think the industry structure from here should become more favorable towards delivery. If we were, let’s say, X percent or we were over 100% in any case, but whatever percent of the overall profit pool we were in Q2, that’s increased in Q3. And our view is that structurally there’s no reason to believe that, that won’t increase. Also, the reality is that with a lot of the networks having shifted towards variable-cost models, the fact is that there is no operating leverage in a lot of the underlying models. And as a consequence as volumes grow, many of our competitors do not have the ability actually to improve their margins with time. Their only sort of approach at this point has to be increases in yields, which will eventually either sort of lead to delivery also increasing yields or will lead to lower volumes for them. So either way, it’s accretive to delivery. So I actually think that we’re getting closer and closer to a reckoning in this industry. I think we’ve said it in the past, there are too many players in the Express parcel business and this industry has to consolidate. And I think the consolidating forces are becoming tighter and tighter.
Gaurav Rateria
Thank you so much. I’ll get back-in the queue.
Operator
Thank you. We’ll take the next question from Lokesh Maru. Lokesh, please go-ahead.
Lokesh Maru
Thanks for the opportunity. Sahil, one fundamental question on our model, which is integrated in nature, right? So in last one year, what has also happened is Valmo has challenged that one-way of working, right, which integrated their model would be more variabilized in nature, let’s say, but then the ramp-up you have seen in last two years has been significant, right? So in your opinion, like what an integrated model took, which was capital and time both, right? So going-forward, one is, let’s say, leashow, but if it is externalized, how do you see that scenario panning out?
And also it raises question on the entry barriers in this industry, right? So your thoughts on the same?
Sahil Barua
Sure. You have said this in the past. The entry barriers and logistics, if you consider entry to merely be the ability to deliver a package are zero. If you own a bike, you’re a logistics company. So in that sense, I don’t think that the entry barriers to logistics to start-off are high. I think the last mile, as I mentioned multiple times, is the most commoditized part of logistics and therefore setting up a last-mile heavy network is not always very difficult to do. You know, signing-up franchise partners who work for let us say the other self-logistics arms is a valid way to quickly and rapidly set-up a last-mile delivery network.
And the advantage, of course, is that the self-logistics arms don’t necessarily have exclusive tie-ups with the franchise partners that they work with. And so they are free-to work with Almo or somebody else. That said, there are significant barriers to scale in logistics, even if there aren’t significant barriers-to-entry, reliably delivering 800 billion packages a year-on time and with the speed that is required for customer satisfaction is a fairly difficult task.
I think we’ve done our benchmarking and we’re pretty confident that delivery service metrics outstrip any of our third-party competitors and first-party competitors with variabilized networks. Variabilized networks unfortunately don’t work as well. A network which comprises of one entity performing sortation, a second entity performing line-haul, a third entity performing last mile, only loosely connected is by definition going to have very significant speed problems and very significant coordination problems.
The other thing, of course, is that the cost of running these networks is higher than the cost of running delivery. I mean, we’ve done the benchmarking and our belief is that our cost of delivery is anywhere between 8% and 10% lower than even the in-house sort of variabilized networks. So I think the in-house logistics network scaling up, as I mentioned before, I had called this out last year and I called this out on multiple quarterly calls, the impact of these networks was always going to be significantly detrimental to our competitors much more than delivery because they were also running variabilized networks.
And I think that’s going to be a problem. The second thing, of course, that will have to be contended with is that third-party players in this market who were servicing the player in question prior to their self-logistics adventure have been loss-making. And so the reality is when you internalize those volumes, those costs accrue to you, whereas those costs were previously being paid by the private-equity investors in those third-party businesses.
And so it will be interesting to see what happens. I think there are interesting challenges ahead, but I don’t fundamentally believe that it changes our answer on an integrated network being better and being the right network. Our speed metrics suggest that our quality metrics suggests that our return rates are lower or cost per shipment is lower.
Lokesh Maru
Sahil, one more thing on externalization of say Valmo or ATS or Instacart. How do you see that you — I’m just calling out these names because they are the ones who have that backing internally and then again the scale, right? So in any way do you see that disrupting some bit of volumes going-forward?
Sahil Barua
In the least. For very simple reasons, I think let’s ignore Valmo for a second. If you take the other first-party players, I think one of them has released its financial results as well. And as I’ve mentioned in the past, their losses could tuple between fiscal ’23 and fiscal ’24, which is problem number-one. Problem number two is, if you are, let us say, a first-party logistics arm for Flipkart and for Amazon and peak season rolls around, how much additional volume are you going to get as a percentage of your total, let’s say you were delivering 500 packages in a delivery center for Flipkart or 500 for Amazon and you got another 30 D2C parcels. Your customer service is obviously going to take precedence over anyone else’s.
And I think this adventure has been tried in the past and it has failed. I would argue that externalization is more or less a — it’s a dead-on arrival proposition, which has been tested and hasn’t worked. You know, talking about something doesn’t make it viable. And over two or three years, these companies have repeatedly said that they are going to externalize services without necessarily being able to break into anything of consequence because the service metrics don’t hold-up, the cost metrics don’t hold-up. And as far as the variabilized model goes, the reality is why would you, if you’re a high-quality D2C brand or an SME and trust your packages which have much higher relative value to you than in a marketplace environment to a third-party network where you can’t even identify if the parcel is damaged or lost, who’s damaged or lost rate.
There is a value to running an integrated network and I don’t see that this is a threat at all.
Lokesh Maru
Understood. Last question from me. The fleet size bumper, which you mentioned, if you could just elaborate on that piece, that’s it. Thanks a lot.
Sahil Barua
And the fleet size, costs you mean?
Lokesh Maru
Yeah, fleet size cost bump-up, which we saw this quarter.
Sahil Barua
I think what happened in the first seven days of the festive season is that our heavy volumes actually were much higher, heavy volumes across e-commerce in fact were much higher. The platforms have also reported this. And so the overall demand for vehicles of a fleet of specific kinds, fleet in the major cities. So if you take Delhi, Bombay, Bangalore, et-cetera, I think increased quite a lot. And as a consequence of that supply was limited and overall pricing of fleet went up compared to what we’d expected. I think we had been operating so-far with a completely third-party fleet and our decision is that we will sign more long-term contracts with our fleet partners locking in these rates for next year a lot better. So-far, we’ve been able to always persist with sort of spot contracts. Those will shift to fixed contracts next year
Operator
. Just a reminder, request all participants to stick to two questions, please. We’ll take the next question from Kesh Saraf., please go-ahead.
Mukesh Saraf
Yeah, good evening and thank you for the opportunity. Sail, just sorry to kind of go back to the Express segment margins. If I look at your overall linehaul expenses that you have on Slide 18, it has come off Y-o-Y as a percentage of revenue. So — but you do mention that that’s one of the major reasons why your margins in this segment is down like 500 bps Y-o-Y. So I’m just wondering you’ve been able to kind of manage these higher line-out expenses in other segments ex of this Express segment, but you haven’t been kind of able to manage that in this Express segment.
So I’m still not able to understand that. If you could kind of explain?
Sahil Barua
Sorry, line — I’m talking about the fleet costs that went up Y-o-Y were the vehicle rental expenses. This is the intra-city fleet.
Mukesh Saraf
So the vehicle rental that you have called — that you have on the same slide 18, is that only the last mile fleet?
Sahil Barua
That is the intra-city fleet. So Mukesh, the linehaul vehicles are vehicles that go from one city to the other, then same city from a hub to a delivery center, there is what is called a run. And then there is of course, the last mile fleet. So the expenses that went up were the intra-city fleet. So to give you an example, there is a warehouse which has, for instance, disbursing a lot of sofa sets or Call-IT gym kits or whatever it is when they are consulting stock in, let’s say Gurgau to our sorting facility in Taodu, those vehicles are the ones where we saw a shortage of supply and as an we saw an inflation in the cost, which you can see. So vehicle rental expenses went from 19.8% or INR434 crores in Q3 fiscal ’24 to in Q3 fiscal ’25.
Now ideally speaking, this number with scale should have been lower than the 19.8% that we saw in Q3 fiscal ’24.
Mukesh Saraf
Right. So even if I look at this INR43 crores going to say INR49 crores, it still doesn’t explain the 500 bp hit. I mean that hit us like more than say INR40 crore INR50 crores for us Y-o-Y in this segment.
Sahil Barua
So INR4 crores going to INR488 crores.
Mukesh Saraf
Yeah, yeah. Sorry. Yeah. INR434 going to 430 — INR488, correct.
Sahil Barua
We should broadly have been at about INR430 crores INR435 crores. So if you take that, Call-IT, INR30 crore INR40 crores on the INR1750 on revenues overall for the transportation segment.
Mukesh Saraf
Okay, that’s entirely in the segment largely.
Sahil Barua
Yeah. So the main impact is there and there’s some impact, as I mentioned from the coming-in of the Bangalore Moscode facility, which has also increased fixed-cost a little bit, but that will normalize through the next year. But the biggest impact on the.
Mukesh Saraf
Okay. Got that. Got that. And secondly on the PTL segment, I think after like six, seven quarters, we’ve seen first time a sequential decline in volumes. So — and I mean, when I look at some of your other peers, listed peers, they’ve also seen some kind of a pressure on volumes this quarter. Are you seeing some signs of difficulty there, there, especially in the SME segment in terms of the PTL?
Sahil Barua
No, Mukesh. So as I mentioned, actually December, we closed very strongly. So we were at about 147,000 tonnes of billable freight in December and we’ve continued very strongly into January. And we also announced, of course that we have a big partnership, which is starting with HPCL, which is going to be significant network into the — significant volume into the LTL network. So we are not seeing that. One of the things, obviously is that Q3 typically tends to be a slightly flattish quarter versus Q2 because a lot of shipout happens before the festive season.
Mukesh Saraf
Right.
Sahil Barua
So that’s one of the things. The other is that at our end also, one of the things that we do in the first part of October, the first two weeks or so is that we tactically moderate PTL volumes in a couple of origins where we believe that heavy volumes are going to be very-high.
Just… So in that sense, we could have seen a Q-o-Q increase also, but in defense of the express business and just to make sure service levels were not in any way sort of affected. We tactically tweaked a little bit of volume on the BTL business, but that was recovered in December and has continued into Jan. So no structural shift.
Mukesh Saraf
Okay. No shift there. All right. Great. Thanks. That’s it from my side. I’ll get back-in the queue.
Sahil Barua
Thank you.
Operator
Thank you. We’ll take the next question from Abhishek Benerjee. Abhishek, please go-ahead.
Abhisek Banerjee
Thanks for the opportunity., the first question is on the customer profile for the express Parcel business. You mentioned how your contribution of D2C has gone up, right? So what would the breakup be around now? And given you believe that know most of the most of the headwinds from in-sourcing is now out, right? So what is kind of a number to kind of build-in in terms of revenue growth because if you’re saying D2C is growing by 30% and if it is a certain percentage of your contribution, how do you look at the revenue growth number for FY ’26 now?
Sahil Barua
Yeah, we don’t break-up our Express Parcel volumes by customer segment. That said, I can tell you that the non-marketplace portion of Delivery’s total volumes is fairly meaningful and that continues to grow. From a revenue guidance standpoint, I think couple of things. One is overall, as I mentioned, e-commerce industry continues to sort of have headwinds. We continue to gain share. The market situation is a little complicated because as I had mentioned, I think last year, the reality is that some of the other 3PLs in this space chose to take price actions to boost volumes for a short period.
I don’t believe that is something that will continue into the next financial year given sort of the capital position and general sort of situation in the market. So there is potentially a revenue upside opportunity for us, which I think we’ll see how it plays out over the next 30, 40 days because this is sort of the period when most people are renegotiating contracts with key customers.
I don’t have full insight into that just yet. But I think broadly, whatever sort of market growth is, we will more or less be able to maintain our growth in-line with market growth.
Abhisek Banerjee
And sir, any signs of the in-house, say, say flip carts internal captives losing some share? Are you seeing any incremental share coming from these guys as they try to focus on quick commerce and on?
Sahil Barua
Yeah. I think things are pretty dynamic overall. There are quarters where outsourcing does increase. There are quarters where outsourcing reduces a little bit. I think there is still a lack of sort of a coherent strategy on the first-party logistics side. What’s very clear though is that the first-party logistics operations are a drag on the overall earnings of the principals. And so the question is sort of at what point do you make the rational financial decision because outsourcing another 10% to third-party logistics will be net accretive to the principals and does not significantly alter the sort of illusion of control over one’s own logistics.
So it would be a great decision for themselves and for the industry at large. That said, I’m not entirely sort of sure just yet. These things will play-out over the next couple of quarters. I think there are many pressures to bear on each of these companies and we’ll see what decisions they take.
Abhisek Banerjee
Got it. So in terms of the rapid intracity deliveries that you spoke about, so why — why do you think only INR80 crore INR100 crores is where you can go in the next one year? I mean, what would be the rough idea in terms of number of warehouses that you believe you can set-up and how is it that you charge customers? Is it per delivery or do you take a warehousing fee or how does that model work?
Sahil Barua
It’s a per delivery fee and there’s also a warehousing fee included in this typical pricing is in the range of between INR80 and INR100 per order that is serviced. We expect to set-up 50 dark stores in the top eight cities. The good thing is on a right note, unlike requiring thousands of dark stores, if you have a two-hour delivery network, you can service the top eight metros with just 50 dark stores, which are not too expensive to set-up. So that’s going to be the extent to which we will set-up.
And then depending on sort of what the demand pattern looks like, we may add a couple of stores here and there, but I don’t anticipate that it will be significantly different from that 50. Now why it will not be materially much larger is because I think you have to look at e-commerce as a whole.
First of all, metros as a total percentage of the volume within e-commerce and specifically, if I take what is called Zone A volume, which is sourced in the metro and delivered in the metro, is close to only about 8% or 9% of total volumes within e-commerce, right? This is material, which is, for example, sourced in Delhi, warehouse in Delhi and delivered in Delhi. Now you’re talking about, first of all, therefore, the addressable market being limited to that 8%. Then on-top of that, the question is what kind of goods lend themselves to that kind of delivery to begin with. Half of e-commerce is soft lines is sort of long-range of items, which don’t lend themselves to, right? Somebody wants to buy a specific t-shirt or wants to buy some specific Kutta, for example, that doesn’t lend itself very easily to this quick commerce kind of model. So that’s half the market nearly gone out-of-the 8%, which are down to about 4%.
Then on-top of that, you say how much inventory will the brands themselves realistically want to stock in. Even if you’re a cosmetics brand and you have whatever, let’s say 100 SKUs, all 100 of them don’t lend themselves to quit commerce. At best, maybe about 10 or 15 of them will lend themselves to Quick commerce. We are really talking about a small percentage of a small percentage of a small percentage lending itself to the rapid commerce kind of model, right? Any further than that, and of course, you can make the argument that I would like to make 75,000 items available to a customer within two hours. The problem then, of course, is that you have to set-up gigantic pods and the ability to set-up a gigantic, for example, in Bombay, it’s not going to come at a rental cost of INR30 a square-foot. It’s going to come at INR300 a square-foot, which will obviate the profitability instantly. And if you go any further back-in the supply-chain, which is to say that I will set-up gigantic, then you’re essentially reinventing Amazon. So I think that’s why the market is broadly limited.
Abhisek Banerjee
Understood. That’s very clear. And just
Operator
To interrupt, Abhishek, request you to please join the queue.
Abhisek Banerjee
Thanks.
Operator
Thank you. We’ll take the next question from Vineet Prasad. Vineet, please go-ahead is unresponsible, we’ll take the next question from Sachin Dixit. Sajin, please go-ahead.
Sachin Dixit
Thanks for the opportunity. My first question is on Express Parcel basically. So during the last earnings call, you mentioned that roughly 78 million-odd shipments happened in October. Our number in December seems stepid from that perspective, right? We were on a good trend in October, but it dipped quite sharply. Can you elaborate more on that? What happened? Was it just the overall e-commerce demand evaporating or there was something else that
Sahil Barua
If I go back to my quarterly call at that time when we’ve spoken about it, I’ve said that the 30% uptick that we had seen from broadly the 60 million 61 million kind of benchmark to the $78 million. In fact, I believe my exact quote at that point was this is par for the course, similar to what we saw last year. Of course, this has been volatile in e-commerce over sort of a 10-year period. There have been occasions where the season has been 50% higher than the average and there have been seasons where it’s been significantly less than 30%. But I think that 30% was car for the course. If you look at that $78 million after that to 206, we’ve added about 128 million-odd shipments in the remaining two months. There’s always a step-down after the peak season.
I think there’s also buying fatigue, right? People have bought whatever they want to online in October. And so volumes do sort of take a dip in November and December. And there’s been a broader sort of softness in consumption. You can see it, for example, in the food delivery numbers, for instance, and that’s of course affected e-commerce as well. I think broadly the consumption slowdown does affect e-commerce and that’s sort of what we saw.
Sachin Dixit
Understood. And it’s just like at 59 odd million run-rate for the remaining two months, it just feels it’s probably even lower than what we saw last year during the same non-festive season. So that’s why I was harping on that.
Sahil Barua
Okay. We did 206 million for the quarter, 78 million in October, which gives you I think 128 million for the remaining two. So 128 by 2 is not 59 million.
Sachin Dixit
Understood. Okay. Sorry, bad math. My next question is on gross margin side. So basically, largely may be driven by the less operating leverage that we got. Expansion has been slightly muted compared to what we have seen in previous years. I understand there was a Bangalore facility which came on-board and could have resulted in some hit. I wanted to understand how does this shape up going-forward in the coming quarter, right, because generally your gross margins trended to dip QoQ in Q4. Do you see that trend reversing this year or it’s likely to sustain?
Sahil Barua
Yeah. I think we should broadly quarter-four will be normative to quarter fours that we have had in the past. Some of the expenses that were one-time expenses or in the sense we build-up some capacity during the peak season and we shed that capacity after the peak season. So that capacity we’ve obviously shed in January. And the second thing is, as I mentioned, as the PTL business grows, it does have a knock-on positive effect on the express business as well and January volumes in PTL have been solid. February so-far has been pretty good. And so as the PTL volumes grow, there’ll be a knock-on positive impact on the express business because linehaul expenses, for instance, will come down and some of the overheating that we saw on the fleet cost side in the first week of October, which dented margins for quarter three. Obviously that impact is not there in-quarter four.
So that will also to some extent reverse. So overall, I don’t think we’ll see anything structurally very different in-quarter four.
Sachin Dixit
Got it. Thanks so much.
Sahil Barua
Thank you.
Operator
Thank you. We will take the next question from Aditya. Aditya, please go-ahead.
Unidentified Participant
Hi, hi,. I had only one question. I just wanted to get a sense from you that at an overall Express parcel level, if the growth for the company is what it is, is it safe to infer that the overall marketplace and otherwise is actually starting to grow less than 10%.
Sahil Barua
I think overall e-commerce growth has certainly moderated, Aditya. There’s no question in this financial year. I think there’s no question. The larger marketplace is obviously a are private, so I don’t know exactly what the numbers are going to turn out to be. But every indicator that we have from them is that volume growth has been fairly muted for all of them. And I know Mishow had a pretty blazing start when they set-up as a — as a company, but the reality is that your base catches up with you over a period of time. So I think even their growth rates will sort of come back to sort of what is normative and similar to what and Amazon are also experiencing, which to my best of our knowledge is sort of growth has been muted, where we have seen growth is in the B2C segment in the SME segment overall as a category, even though individual players, as I’ve mentioned, may go up-and-down sort of in any given quarter, but those segments of e-commerce, I think continue to have reasonable growth.
Unidentified Participant
And just a follow-up question as in, do you see levers that your customers can pull to make this number go back into the mid-teens or as a conservative estimate as you plan incrementally, I think you think lower numbers are.
Sahil Barua
I think I’ve said this in the past. If our customers shut-down self-logistics arms, they would be able to inject $0.5 billion back into marketing and growing the market. That’s the biggest lever they have. And on behalf of the industry, we warmly encourage them to do that.
Unidentified Participant
Got it. Those are my questions. Thank you for the response. Thank you.
Operator
Thank you. We’ll take the next question from Vineet Prasad. Vineet, please unmute your line and go-ahead we can’t hear okay, in that case, we can take a follow-up question from Gaurav Rateria. Gaurav, would you like to go-ahead with your question?
Gaurav Rateria
Hey, thanks for taking me again. I again have couple of questions. First, assuming that volume growth in the overall express business remains subdued, do we have levers to get back to 17% to 20% margin range or will it be a function of growth and thereby operating leverage in that?
Second question is, why wait for price action from competition and why we don’t act as leaders and try to force consolidation? Is it not a good strategy? And lastly, just a data point to understand better the cost per parcel metrics, should it be looked upon more in terms of cost per ton or cost per kg in order to better understand the cost structure for delivery as a whole? Thank you.
Sahil Barua
On Express, to get to the 17% to 20% margin, can we get there without significant volume growth? I think the answer is yes. We can. One is obviously, as I’ve mentioned, the PTL business continuing to grow will improve line-haul costs for both the Express and the PTL business. So we should be able to get to that. And I don’t anticipate that there will be very significant sort of price movements downwards in any way. So no reason to believe that we can’t get to those EBITDA margins. I think as the PTL volumes grow, that should happen to some extent naturally. And the second, obviously, as I mentioned is that the fleet costs in-quarter three were a little abnormal, which are starting to reverse.
They’ve already reversed in Jan-Feb. So as we negotiate these fixed contracts, I think we will get to — to back to those 17% to 20% margin kind of range. Why not force consolidation? I think the issue obviously is sort of in what sense the reality is M&A opportunities for delivery, there’s not much that we would be able to acquire in this case because the fact of the matter is that you know the volumes are highly concentrated for most Of our competitors. And so it’s not clear sort of what value we should ascribe to those volumes. I think the reality is it’s better to let discipline sort of enforce itself. So we’ll wait-and-watch. If the right consolidation opportunity becomes available at the right price, then obviously delivery is an actual consolidator in the market. But I don’t believe it’s necessary for us to try to force anything at this point in time. In terms of cost per parcel, slightly different answer for e-commerce versus LTL. On LTL, you should absolutely look at-cost per kilogram of cost per ton of course, internally we look at it at not just cost per ton, but also distance traveled overall, but cost per kg per ton is absolutely valid metric. On the parcel business, you can choose to look at it either as cost per kilogram, available kilogram or cost per parcel as a whole. Of course, the problem is that the cost per parcel as a whole for delivery is very different for different package types. And so the composition matters a lot. So we look at it as cost per parcel delivered, say, sub 250 grams cost per parcel delivered, sub 500 grams and so on in those slabs and cost per parcel delivered in different zones, zone B, zone, C only, and so on. So it’s a little more complicated than but as a broad sort of indicator, the cost per parcel for the e-commerce business, e-commerce parcel business is also a reasonable metric
Gaurav Rateria
Got it. I was asking more because it may not be comparable for competition because competition may have a very different composition of the volumes in terms of the weight they carry, average weight per parcel or the distance that the travel.
Sahil Barua
Sure, you’re right. And that’s why we look at it when we talk of cost per parcel, we also compare versus competition at every price lab at every zone slab. So when I talk about deliveries, cost per parcel being lower, it’s not just at an aggregated level. It is — we know for example that our cost is competitive is lower at Zone Ace up to 50 gram, Zone a sub 500 gram, Zona up to-1 kg and so on and so forth. So it’s across all slabs and all weight categories.
Gaurav Rateria
Thank you.
Operator
We’ll take the next question from Nimagada., please go-ahead.
Unidentified Participant
Hello, am I audible?
Sahil Barua
Yes, please.
Unidentified Participant
Yeah, sure. Thank you. Sir, I’m just trying to add-up this growth numbers. I mean, our volumes rose at only 2%, but if I were to compare that with the growth in say D2C or a vertical players, I mean that stuff flat around 20% 30%. And when you say that non-marketplace volumes rose are fairly meaningful for us, I’m just trying to bridge this gap. I mean, 20%, 30% growth for these players and then our total volumes being only 2%. So where-is a gap, like what would be the mix of e-commerce volumes or online commerce ex non-marketplace in total share and how will that add-up to this 2% growth? If you can provide some color here over here?
Sahil Barua
See we don’t share client level overall volumes. So we can’t reveal sort of individual clients and segments. That said, you’re right, the overall growth in the D2C, SME aggregator segments has been higher in the range of as I said, minimum is 30% for D2C, 50% plus for SME. Put together, as I mentioned, is a meaningful percentage of our business. Of course, a larger percentage than this comes from the marketplaces that we serve and obviously, not just the marketplaces, even the likes of verticals like, for instance in and AGO and so on. Some of these accounts as an example, you’re aware that Reliance has had a year where volumes have been lower in this financial year than in the previous year. So there are also clients that we’ve had where their overall volumes have degrown. Similarly, we used to service a customer called APL, which was acquired by Amazon, which now has been folded into Amazon and I believe volumes from there are zero because that effectively has been shut-down. And so we have some clients which also churn out. We have some clients where their volumes decline and the marketplace volumes grow by less than obviously what the D2C, SME and aggregator volumes grow.
Unidentified Participant
If I were to ask, I mean, I understand that you don’t want to give client level data, but on an approximate level basis, would Walmart or still contribute — I mean show would still be around 20%, 30% of your volumes or is this lower number? And therefore, the impact of in-source should not be meaningful from you for here. In that case, what is the kind of 10 to 2% range in volume growth that you’re looking at for FY ’26? Should it be in double-digits or do you think that it’s going to be in single-digits? Any color that you can put here, please?
Sahil Barua
Yeah. So we don’t reveal individual client volumes and I would prefer not to reveal sort of what individual client makeup is. Our top clients, as I’ve mentioned, our top three or four clients put together largest customers from top-five customers will form close to less than half of the overall revenue of the ability. So we don’t have very significant sort of client concentration as a whole. In terms of volume growth guidance for next year, I think, look, it’s hard to say because there are a couple of competing factors. One is obviously headwinds facing e-commerce as a whole. I think it remains to be seen sort of how these companies continue to drive growth next year. I think more investments in marketing, more investments in consumer acquisition, driving more category growth. If those continue a pace, then there’s no reason to believe that volume growth in e-commerce will not come back.
I think there is demand and going into Tier-2, Tier-3, Tier-4 cities a bit more, localizing, a bit more will help because that’s really where a bulk of the growth has to come from. So we’ll see. Our anticipation is that hopefully these measures will come in and we will get our fair share of that. I think there are also cost pressures that as I mentioned, first-party logistics companies face, third-party logistics companies, of course, face it as well. And as people look at their mix, I do believe that a more financially prudent decision would be to outsource a little more to third-party players and we’ll see how that plays out.
These are active conversations that we are having with all of our customers and if there’s even minor shifts in the strategy, the upside to delivery could be large. But it’s hard to say at this point, I think because these strategies are still relatively fluid. But I think the reality is that overall from an insourcing standpoint, most of the sort of insourcing that could be done by the three platforms is already sort of. And so the impact of additional insourcing will not be as large as sort of it’s been in the past. So I don’t anticipate there’s going to be a very big headwind. But again, this industry is pretty dynamic. Things change on a weekly basis. So we’ll know more as we go along.
Unidentified Participant
Sure, Sail. Thanks for answering that question. Hope that hope things better things pan-out in future. Thank you.
Sahil Barua
Thank you.
Operator
Thank you, everyone. That was the last question. Please reach-out to the IR team for any further questions. And before we end, on behalf of, I would like to thank Delhivary for the opportunity to host this earnings call. Over to you, Sal, for any closing remarks.
Sahil Barua
Thank you all for joining the earnings call. Thank you to the for hosting us this evening and look-forward to speaking with all of you after our Q4 results. Thank you