Shares of Swiggy Ltd. saw a significant 7% plunge in Monday's trading session after the online food delivery and quick commerce platform released its March quarter results. While the company's core food delivery segment showed promising progress, concerns over the performance of its quick commerce arm, Instamart, weighed heavily on investor sentiment.
Instamart Growth Slows, Food Delivery on Track
Analysts largely agreed that Swiggy's food delivery business is performing well, with new initiatives scaling effectively. However, the quick commerce segment, Instamart, emerged as a point of concern. Instamart's net order value (NoV) growth decelerated sharply to just 3.6% sequentially in the March quarter, a stark contrast to the 11.4% growth seen in the December quarter and 17.5% in the September quarter.
HDFC Securities highlighted a growing disparity in performance between Instamart and its competitor, Blinkit. Despite this, they suggested that Instamart's losses in quick commerce appear to have peaked, and at current valuations, the segment could be considered "effectively available for free."
Analysts Maintain 'Buy' Ratings Despite Price Target Cuts
Despite the stock's tumble and some revised price targets, a majority of analysts remain optimistic about Swiggy's long-term prospects, with several brokerage firms reiterating 'Buy' recommendations. The consensus suggests a potential upside of up to 100% from current levels.
- ICICI Securities maintained a 'BUY' rating, though they adjusted their target price from Rs 600 to Rs 520, citing quick commerce earnings cuts. Following Monday's fall, their revised target still implies a 100% upside over the prevailing price of Rs 261.20 per share. The brokerage stated that Swiggy continues to offer a favorable risk-reward skew at its current market price.
- Elara Securities, however, took a more cautious stance on Instamart's profitability timeline. While acknowledging that contribution margin (CM) break-even is imminent, Elara believes the path to EBITDA break-even for Instamart could be significantly longer than that of Blinkit. They slashed their target price to Rs 360 from Rs 425, noting that Instamart's EBITDA profitability could take more than twice as long, with adjusted EBITDA losses moderating to Rs 160 crore by FY28E.
- Nuvama also tweaked its FY27E/28E EBITDA estimates slightly, factoring in growth moderation but keeping the margin trajectory unchanged. They retained their 'Buy' rating with a revised target price of Rs 477.
- HDFC Securities revised its overall adjusted EBITDA loss estimates for FY27 and FY28 but maintained its 'BUY' rating with a Sum-of-the-Parts (SOTP) based target price of Rs 460 per share.
Management Outlook
Swiggy's management reiterated its guidance for 18-20% year-on-year growth and aims for an adjusted EBITDA margin of 5% in the medium term. Better-than-estimated growth in quick commerce coupled with improving profitability remain key factors for potential upgrades in analyst ratings.
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