Delhivery Q2 FY26: Losses Mount as Operating Efficiency Deteriorates

The logistics major's results reveal a troubling pattern: whilst top-line momentum remains intact with net sales climbing 11.57% quarter-on-quarter to ₹2,559.32 crores, the company's operational efficiency has deteriorated sharply. Operating profit excluding other income collapsed to ₹68.17 crores from ₹148.82 crores in Q1 FY26, with margins contracting from 6.49% to just 2.66%. This represents the weakest operational performance since March 2025, raising serious questions about the sustainability of Delhivery's business model in an increasingly competitive logistics landscape.

The market's harsh verdict—a 7.66% single-day decline—underscores growing concerns about profitability amidst expansion. With the stock now trading below all key moving averages and technical indicators turning mildly bearish, investors are reassessing their positions in what was once considered a high-growth logistics play. The company's proprietary Mojo score has plummeted to 24 out of 100, triggering a "Strong Sell" rating—a stark warning for both existing shareholders and potential investors.

Financial Performance: Revenue Growth Masks Profitability Crisis

Delhivery's Q2 FY26 results present a troubling paradox: strong revenue momentum accompanied by a complete erosion of profitability. Net sales for the quarter reached ₹2,559.32 crores, representing an 11.57% sequential increase and a robust 16.88% year-on-year expansion. This marks the highest quarterly revenue in the company's history, reflecting continued market share gains in India's rapidly growing e-commerce logistics sector.

However, beneath this encouraging top-line performance lies a profitability crisis. The company swung from a consolidated net profit of ₹91.05 crores in Q1 FY26 to a loss of ₹50.38 crores in Q2 FY26—a staggering 155.33% quarter-on-quarter deterioration. Year-on-year comparisons are equally damning, with Q2 FY26 losses representing a 593.92% decline from the ₹10.20 crores profit recorded in Q2 FY25.

The margin compression story is particularly concerning. Operating profit excluding other income collapsed to ₹68.17 crores from ₹148.82 crores in the previous quarter, with operating margins (excluding other income) plummeting from 6.49% to 2.66%—a dramatic 382 basis point contraction. This represents the weakest operational performance since March 2024, when the company posted similar anaemic margins of 2.21%.

The gross profit margin tells a similar story of deterioration, contracting from 10.67% in Q1 FY26 to just 4.75% in Q2 FY26. PAT margins turned sharply negative at -1.97%, compared to a healthy +3.97% in the preceding quarter. This dramatic reversal suggests that Delhivery's pricing power has weakened considerably, potentially due to intensified competition or aggressive volume-chasing strategies that prioritise market share over profitability.

Employee costs rose to ₹425.59 crores from ₹352.66 crores quarter-on-quarter, a 20.69% increase that significantly outpaced the 11.57% revenue growth. This widening gap between revenue growth and cost escalation is unsustainable and points to operational inefficiencies that management must urgently address. The company's inability to leverage its scale into margin expansion raises fundamental questions about its business model's long-term viability.

Operational Challenges: Cost Pressures and Efficiency Concerns

The sharp deterioration in Delhivery's operational metrics reveals deep-seated efficiency challenges that extend beyond normal quarterly volatility. Operating profit to interest coverage has plummeted to just 1.75 times in Q2 FY26, marking the lowest level in recent quarters and signalling growing financial stress. Interest expenses climbed to ₹38.86 crores from ₹34.01 crores in Q1 FY26, a 14.26% sequential increase that reflects both higher borrowing costs and potentially increased debt levels to fund expansion.

Depreciation charges surged to ₹178.11 crores from ₹147.46 crores in the previous quarter, a 20.78% jump that suggests aggressive capital expenditure on infrastructure and fleet expansion. Whilst such investments may position the company for future growth, they are currently weighing heavily on near-term profitability without delivering commensurate operational improvements.

The company's return metrics paint a particularly concerning picture. With an average return on equity of just 0.44% and a latest quarter ROE of 1.77%, Delhivery is generating virtually no returns for its shareholders despite a substantial equity base of ₹9,432.15 crores. This represents one of the weakest ROE profiles in the transport services sector, where peers like Blue Dart Express and Blackbuck deliver ROEs exceeding 27%.

Even more troubling is the negative return on capital employed (ROCE) of -9.90% on average and -2.00% in the latest period. This indicates that Delhivery is actually destroying value rather than creating it, with the capital deployed in the business generating returns below the cost of capital. For a company trading at 3.84 times book value, such poor capital efficiency is particularly difficult to justify.

The debtors turnover ratio has deteriorated to 0.63 times on a half-yearly basis, the lowest in recent periods, suggesting potential working capital pressures and collection challenges. This could indicate that the company is extending more liberal credit terms to win business—a strategy that boosts volumes but strains cash flows and increases credit risk.

Industry Context: Navigating a Brutally Competitive Landscape

Delhivery operates in India's fiercely competitive logistics sector, where the rapid growth of e-commerce has attracted numerous well-funded players. As the second-largest company in the transport services sector by market capitalisation, Delhivery faces pressure from both established players like Blue Dart Express (backed by DHL) and emerging technology-enabled competitors like Blackbuck.

The logistics industry is inherently capital-intensive with thin margins, requiring continuous investment in infrastructure, technology, and fleet whilst operating in an environment of intense price competition. Delhivery's Q2 FY26 results suggest that the company may be sacrificing profitability to defend or gain market share—a dangerous strategy that can quickly become unsustainable if competitors respond with similar pricing aggression.

The company's zero promoter holding structure—a legacy of its venture capital-backed origins—means there is no controlling shareholder with aligned long-term interests to guide strategic decision-making. Whilst institutional holdings remain robust at 83.70%, the recent decline in foreign institutional investor (FII) holdings from 55.03% in September 2024 to 51.64% in September 2025 suggests growing unease amongst sophisticated investors about the company's profitability trajectory.

Peer Comparison: Valuation Premium Without Performance Justification

When compared against sector peers, Delhivery's valuation appears increasingly difficult to justify given its weak operational performance. The company trades at a price-to-earnings ratio of 182.38x on a trailing twelve-month basis—more than six times the sector average of approximately 28x and significantly higher than established players like Container Corporation (31.26x) and Blackbuck (33.26x).

The valuation disconnect becomes even more stark when examining return metrics. Delhivery's ROE of 0.44% is dramatically lower than peers—Blue Dart Express and Blackbuck both deliver ROEs exceeding 27%, whilst even Container Corporation manages 9.38%. Despite this massive performance gap, Delhivery trades at a price-to-book ratio of 3.84x, broadly in line with Container Corporation's 3.34x and far below the premium multiples commanded by Blue Dart (9.61x) and Blackbuck (9.74x).

The only area where Delhivery demonstrates relative strength is its balance sheet position, with a negative net debt-to-equity ratio of -0.16x indicating it is a net cash company. This financial flexibility is valuable, but it cannot indefinitely compensate for operational underperformance. The company's EV/EBITDA multiple of 81.36x is extraordinarily elevated, reflecting the market's historical willingness to look past near-term losses in anticipation of future profitability—a patience that appears to be waning.

Valuation Analysis: Premium Pricing for Substandard Performance

Delhivery's current valuation metrics suggest the market is pricing in a dramatic improvement in profitability that recent results do not support. At a P/E ratio of 182.38x, the stock trades at a substantial premium to both its sector peers and broader market indices, despite delivering amongst the weakest return profiles in the industry.

The company's price-to-book ratio of 3.84x implies that investors are willing to pay nearly four times the accounting value of the business for each share. Whilst such premiums can be justified for high-return businesses with strong competitive moats, Delhivery's ROE of 0.44% and negative ROCE suggest the opposite—this is a business that struggles to generate adequate returns on the capital employed.

The EV/EBITDA multiple of 81.36x is particularly concerning, indicating that investors are paying more than 81 times the company's operating earnings before interest, taxes, depreciation, and amortisation. For context, mature, profitable logistics companies typically trade at EV/EBITDA multiples in the mid-teens to low-twenties range. Delhivery's elevated multiple reflects lingering optimism about future margin expansion—optimism that Q2 FY26 results severely undermine.

The proprietary Mojo score of 24 out of 100 places Delhivery firmly in "Strong Sell" territory, reflecting the combination of deteriorating financial trends, below-average quality metrics, risky valuation, and mildly bearish technical indicators. This score has declined precipitously from 51 (Hold rating) just days earlier, highlighting how rapidly the investment case has deteriorated following the Q2 results.

Shareholding Pattern: Institutional Confidence Wavering

Delhivery's shareholding structure reveals a gradual erosion of institutional confidence over recent quarters. Foreign institutional investors (FIIs), who represent the largest shareholder category, have steadily reduced their holdings from 55.03% in September 2024 to 51.64% in September 2025—a cumulative decline of 3.39 percentage points that signals growing concern about the company's profitability trajectory.

Partially offsetting this FII exodus has been increased interest from domestic mutual funds, whose holdings have risen from 24.91% in September 2024 to 29.94% in September 2025. The most recent quarter saw a particularly sharp 2.88 percentage point increase in mutual fund holdings, suggesting that some domestic institutional investors view the recent weakness as a buying opportunity.

However, this optimism is not universally shared. Insurance companies have dramatically reduced their exposure, with holdings declining from 2.94% in September 2024 to just 1.47% in September 2025. The sharp 1.35 percentage point sequential decline between March and June 2025 is particularly notable, suggesting that long-term institutional investors with conservative mandates are reducing exposure to what they perceive as an increasingly risky investment.

The absence of any promoter holding—a structural feature of Delhivery's venture capital-backed origins—means there is no controlling shareholder with aligned long-term interests. Whilst the company's zero promoter pledging is positive (as there are no shares to pledge), the lack of a committed promoter group means strategic direction depends entirely on professional management and diverse institutional shareholders with potentially conflicting time horizons and objectives.

Stock Performance: Sharp Reversal After Six-Month Rally

Delhivery's stock performance presents a tale of two periods: a strong six-month rally followed by recent sharp underperformance. Over the past six months, the stock has surged 48.03%, dramatically outperforming the Sensex's 3.45% gain and generating alpha of 44.58 percentage points. This rally reflected market optimism about the company's path to sustained profitability following improved results in Q4 FY25 and Q1 FY26.

However, recent performance has reversed sharply. The stock has declined 7.66% in a single day following the Q2 results announcement, underperforming the Sensex by 7.61 percentage points. Over the past week, month, and three-month periods, Delhivery has consistently underperformed the broader market, with negative alpha ranging from 4.64 to 5.22 percentage points. This deterioration reflects growing investor concern that the Q1 FY26 profitability was an aberration rather than the beginning of a sustainable trend.

The stock currently trades at ₹447.80, below all key moving averages including the 5-day (₹476.31), 20-day (₹470.32), 50-day (₹467.55), 100-day (₹442.07), and 200-day (₹370.90) moving averages. This technical breakdown suggests weakening momentum and potential for further downside if operational performance does not improve rapidly.

With a beta of 1.35, Delhivery is classified as a high-beta stock that amplifies market movements. The stock's volatility of 34.83% over the past year—nearly three times the Sensex's 12.45%—makes it suitable only for investors with high risk tolerance. The risk-adjusted return of 0.75 over the past year, whilst positive, is significantly higher than the Sensex's 0.30, indicating that investors have been compensated for the additional volatility, though recent performance suggests this relationship may be deteriorating.

Investment Thesis: Multiple Red Flags Outweigh Growth Potential

Delhivery's investment thesis has deteriorated significantly following Q2 FY26 results, with multiple fundamental concerns now outweighing the company's growth potential. The proprietary Mojo score of 24 out of 100 reflects weakness across all four key assessment parameters: valuation (Risky), quality (Below Average), financial trend (Negative), and technicals (Mildly Bullish turning Bearish).

The valuation grade of "Risky" reflects the disconnect between Delhivery's premium pricing (P/E of 182.38x, P/BV of 3.84x) and its substandard operational performance. The quality assessment of "Below Average" is driven by extremely weak return metrics—an average ROE of 0.44% and negative average ROCE of -9.90%—that place Delhivery amongst the poorest performers in the transport services sector.

Most concerning is the "Negative" financial trend designation, triggered by Q2 FY26's dramatic profitability collapse. Key negative factors identified include the quarterly PAT falling 201.4% versus the previous four-quarter average, the debt-equity ratio reaching its highest level at 0.48 times on a half-yearly basis, operating profit to interest coverage hitting its lowest point at 1.75 times, and earnings per share declining to -₹0.67.

Outlook: What Lies Ahead

Delhivery faces a critical juncture where management must demonstrate that Q2 FY26's profitability collapse was an aberration rather than the beginning of a sustained deterioration. The company's ability to navigate this challenge will determine whether it can justify its premium valuation or faces further multiple compression.

The logistics sector's competitive intensity shows no signs of abating, with well-funded players continuing to invest aggressively in capacity and technology. Delhivery's ability to differentiate itself through service quality, technology integration, and operational efficiency will be critical to avoiding a prolonged margin compression cycle.

Management's commentary on the earnings call will be crucial in determining whether the Q2 profitability collapse reflects temporary factors (such as one-time costs or seasonal impacts) or structural challenges requiring strategic recalibration. Investors should pay particular attention to guidance on margin trajectory, cost management initiatives, and the company's willingness to prioritise profitability over market share gains.