Daybreak - Why Delhivery’s Ecom Express deal is both tactical and desperate

Episode Date: April 28, 2025

Earlier this month, India’s largest third party logistics company, Delhivery, acquired its biggest rival Ecom Express in a $165 million distress sale. The acquisition could not have come at a better time for both parties. Things have been tough for Ecom for some time now. The company, in fact, called off its IPO plans just this February, about six months after filing the papers and ended up laying off hundreds of its employees. Meanwhile, Delhivery has been soldiering some tough times too.  By acquiring its floundering rival, Delhivery seems to be going all out to claw back some business. But is that enough? Tune in. Daybreak is looking for a talented audio journalist with at least two years of experience. Check out the role here. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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Earlier this month, India's largest third-party logistics company delivery acquired its biggest rival Ecom Express in a $165 million distress sale. This acquisition could not have come at a better time for both parties. Yeah, it was definitely a fire sale. So, e-com was in pretty direstress. leading up to the sale. That's my colleague God of Bargur.

He covers e-commerce and consumer tech for the KEN, and he says that things have been tough for e-com for quite a while now. In fact, the company called off its IPO plans just this February about six months after filing the papers. It also ended up laying off hundreds of its employees. This was their second attempt at IPOing after the first time around a few years ago failed. And this time as well, it obviously fell through. and it's largely because they were at the mercy of Misho.

Misho was Ecom's biggest customer. In FY24, Misho was more than half of Ecom's revenue. And at one point last year, Misho made this move to bring its logistics in-house, right? Taking away business from a lot of third-party logistics players. And because E-com in particular was so dependent on Misho, it really hit them a lot harder. And there were other aspects to it as well. Like, E-com had struggled to diversify their revenues teams. and sadly two of the four co-founders passed away over the last few years

and they had some issues with their management transition of late as well. That's why when delivery came knocking at its door, e-com gave in and took the deal. That's despite the fact that delivery slashed nearly 80% of its previous valuation of about $878 million. Delivery essentially made the most of e-com expresses difficult situation. But it's also not like it had much of a choice. So compared to e-com, delivery is still more diversified in terms of, you know, the major customers that it has, the services that it offers.

But deliveries, e-commerce parcel business is still its bread and butter, right? It's around two-thirds of its revenue. And that means that they're really dependent on e-commerce marketplaces like Amazon, Flipkart and Meshore mainly. And that's been hurting them because macro factors like, you know, quick commerce, inflation eating into discretionary. spending power, all of this has caused a bit of a slowdown in e-commerce. E-commerce volumes are growing at less than half of what they were a few years ago. It would have been like 25, 30 percent earlier and it's less than half of that now. So the nature of the business is dramatically changing.

By acquiring its floundering rival, delivery seems to be going all out to claw back some business. But is that really enough? Welcome to Daybreak, a business podcast from I'm your host Rahal Philippos and every week my colleague Sigda Sharma and I will bring you one business story that is worth understanding and worth your time. Today is Tuesday, the 29th of April. Before we continue, I want to take a quick pit stop to share some great news. Daybreak is growing, which means we need a bigger team.

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We were talking about delivery and e-com. Well, like my colleague Gaurav mentioned a while ago, three marketplaces. Amazon, Flipcard and Me Show account for nearly 70% of all the shipments they handle. But for them to survive in the long run, Godd have said they are increasingly realizing that they may have to change up that strategy. Actually, it's even more extreme than that. So, you know, Amazon has something called ATS and Flipkart has E-Cart logistics.

So these are the in-house logistics units of these companies, right? And these actually handle the vast majority, almost 80 to 90% of their deliveries are handled through in-house logistics. And so it's a very small piece of the overall e-commerce. that actually goes to third-party logistics players. And even, of course, even across, even from that, it's spread across multiple third-party logistics players. First, they only had Amazon and Flipka to worry about. But now, the fact that Mishu is also going down the same route

is making things extremely difficult for these third-party logistics companies. And that's not all. You see, the other big challenge they are facing is the rise of 10-minute delivery apps like Blinket, Zepto, and Swiggy Instamart. Think about it. Now that you are able to purchase everything from your groceries to a full-blown air conditioner

on QuickCommerce within minutes, where does that really leave these third-party logistics companies? Well, Gorda says it leaves them in a pretty precarious place. So obviously, QuickCommerce is the hot zone right now in e-commerce, right? And delivery and other third-party logistics players want a piece of that pie, but the scope of the scope for their involvement is limited. Because obviously the major quick commerce platforms like Zepto, Blinket, these guys have their own fleets which they rely on.

They're not too interested in working with third-party logistics players. There are some companies that have gotten in the business of setting up third-party dark stores. And these are shared by multiple brands. They do same-day delivery on a slightly longer timeline. It's more like 30 minutes to a few hours kind of timeline. So delivery has tried to get in on this as well. But in the grand scheme of things, it's a pretty small opportunity. As Sahel Barua said, he's the CEO of delivery.

I think it's around 80 to 100 crore in additional revenue per year. And we're talking about a company that makes 1,200 to 500 crore in revenue per quarter. So he's right, it's not a huge opportunity for them. All these factors combined have really slowed down the growth of online retail, which is why it isn't surprising that delivery's e-commerce-driven express parcel shipments haven't really grown significantly over the past year. Now, listed players like Blue Dart and TCI Express enjoy higher margins in B2B logistics. And that's because they don't have to contend with high return rates or more fragmented, price-sensitive clientele.

Delivery seems to be headed in that direction too, and it's also been more successful in that regard than e-com. but the company's non-express parcel services haven't been contributing much to its stopline. Now the stock market is taking note of it too. So delivery likely thought of the e-com express deal as a way to increase its stopline at the right time for the right price. Yeah, so in the short term you're basically acquiring their entire customer base,

you're acquiring additional volumes and you're getting it at a fire sale price, right? So it's a good deal. So that additional volume, which does, delivery gets from acquiring e-com can help to squeeze the most out of its network, right? Passing more volumes through the same facilities will improve their unit economics. It's going to bring down their logistics cost. They can pass on the cost savings to their customers.

At least in the short term, it's going to help their business. But in the long term, well, that's where things get fuzzy. Stay tuned. An e-commerce executive Goddorf spoke to said delivery strategy with this acquisition is simple. It's survival. It's trying to consolidate to survive in a competitive market, a market where clients are limited. Third-party logistics in India is a highly concentrated market.

In FY21, delivery's top-five customers drove around 43% of its overall business. That number only marginally dropped in the next three years. The good news is that the e-com acquisition is likely to give delivery an edge. So, third-party logistics companies have been competing. competing on price for the recent past. And that's great for the marketplaces like Amazon, because they want to bring down their logistics cost. They want to get closer to profitability.

This is particularly important for Flipcard and Misho, which are, you know, like have been working on getting to a public listing. But it's not great for third party logistics companies, obviously because you know, when you compete on price, it eats into your revenues. So now you take one competitor out of the picture, right? By delivery acquiring ecom. So that takes a little bit of

of pricing pressure away. But all of these are short-term solutions. In the long run, delivery will struggle sustaining higher volumes. And that's precisely because, like I mentioned earlier, Amazon, Flipkart and Misho are not going to rely on one player alone for deliveries. So these guys have ideas around the share of their business that they give to any one player, right? So if you give too large a share of your overall volumes to any one logistics partner, they can

it gives them too much power to charge you higher prices. So, you know, removing one competitor benefits delivery, as I said. But in the long run, you would expect the marketplaces to react accordingly. If they see that, you know, too much of their volumes are going to one company, they're going to redistribute towards other third-party logistics players. There's, you know, ExpressP's DTDC, there's a lot of regional players. So that adjustment would happen. Look after the merger.

Well, it's not too clear how the illegal. integration will play out. But for now, the company will have to rejig its network to maximize utilization and manage the load. Goraev explains how. So it's going to take some time. I think delivery will be working on deciding what facilities and what assets to keep, what to shut down.

They look at, you know, the efficiency that this can bring to the network. There might be certain pincodes where e-coms network would be, would actually be operating more efficiently than deliveries. there would be places where it's redundant, so they have to make those calls. But because the two companies are pretty much in the same line of business, the integration should be relatively smoother. Delivery has some past experience with this.

It acquired a company called SpotOn, which is a B2B logistics company, and considering that SpotOn and Delivery had very different businesses, there were some challenges in the integration there. But e-com and delivery have pretty much the same core business. so it should be a lot easier this time around. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me, Snigda Sharma,

and edited by Rajiv Sien.