Swiggy, India’s leading food and grocery delivery platform, has reported its Q3 FY25 results, showcasing significant growth across its business segments. However, intensifying competition in the quick commerce space has resulted in widening losses, sending Swiggy’s shares down 7% on Thursday’s trade.
Swiggy’s Q3 Performance: Growth vs. Profitability Pressure
Swiggy’s revenue for the December quarter stood at Rs 3,993 crore, close to analysts’ consensus estimate of Rs 4,020 crore. However, its reported loss of Rs 799 crore was significantly higher than the estimated Rs 620 crore, raising concerns among investors and market analysts.
Despite the revenue growth, Swiggy’s aggressive expansion strategy, particularly in the quick commerce segment, has put pressure on profitability. Analysts from Nuvama pointed out that Instamart’s adjusted EBITDA margin declined by 420 basis points (bps) quarter-on-quarter (QoQ), while its contribution margin (CM) dropped by 270 bps QoQ. This decline was attributed to the addition of new dark stores, which expanded rapidly in the second half of the quarter and continued into January 2025.
Quick Commerce Expansion: A Double-Edged Sword
Swiggy’s Instamart business, which saw a rapid rise in scale with 88% year-on-year (YoY) growth, continues to be a major focus. However, the aggressive expansion of dark stores has increased operational costs, impacting near-term profitability. MOFSL noted that while the food delivery segment remains a stable duopoly, the quick commerce sector’s profitability expectations have been rebased due to rising competition and aggressive growth strategies.
Despite these short-term concerns, MOFSL remains optimistic about the long-term potential. It highlighted that Swiggy’s implied EV/GMV FY27e multiple for quick commerce is 0.7x, which is not overly demanding. An increase in Average Order Value (AOV) and take rates, along with a potential stock price correction, could make Swiggy an attractive investment opportunity.
Swiggy’s Stock Performance and Future Outlook
Swiggy’s stock tumbled 7.43% on Thursday, hitting a low of Rs 387, marking a 25% decline in 2025 so far. Analysts predict continued pressure on profitability in the coming years. According to MOFSL’s estimates, Swiggy’s PAT margin is expected to be -19.5% in FY25, -11.4% in FY26, and -5.4% in FY27, largely due to its aggressive quick commerce expansion.
Despite the ongoing challenges, some analysts see potential upside. ICICI Securities maintained a ‘Buy’ rating on Swiggy, with a three-stage DCF-based target price of Rs 740. It noted that Instamart’s contribution margin declined 270 bps QoQ, compared to an 80 bps decline for Blinkit, Swiggy’s key competitor. However, the pre-contribution expenses per square foot in Instamart have increased by 8.6% QoQ, in line with its aggressive city expansion from 54 to 84 cities.
Looking Ahead: Can Swiggy Balance Growth and Profitability?
Swiggy’s strong 38% YoY increase in B2C gross order value (GOV) and growing Instamart user base of 9 million highlight its ability to attract more customers. However, the company now faces the challenge of balancing growth with sustainable profitability.
While dark store expansion remains a strategic move to strengthen its foothold in the quick commerce space, investors will be watching closely to see if Swiggy can improve its margins while maintaining its ambitious growth trajectory. With a DCF-based valuation of Rs 460, MOFSL suggests a 10% potential upside from CMP, but remains neutral on the stock for now.
Swiggy’s future will depend on its ability to optimize costs, enhance efficiency, and sustain revenue growth while navigating an increasingly competitive landscape. As the quick commerce battle intensifies, Swiggy’s execution in the coming quarters will be critical to shaping its long-term success.
