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Informist, Monday, Jan. 26, 2025

 

By Eshitva Prakash

 

MUMBAI – Swiggy Ltd. is expected to report a widening of its consolidated net loss for the December quarter on year as the bottom line of its quick-commerce business continues to be hamstrung by marketing and expansion costs and heightened competition, according to brokerages tracking the company. Instamart is trying to find the right balance between growth and profitability, brokerages said. However, Swiggy's top line will continue to soar on robust growth in gross order value in its food delivery and quick-commerce segments, according to the brokerages. The company is yet to report a net profit since listing.

 

Swiggy is expected to report a consolidated net loss of more than INR 10 billion for the December quarter, higher than the net loss of around INR 8 billion it had reported a year ago, according to the average of estimates from seven brokerages. This projection implies a slight decrease in net loss sequentially. Elara Securities (India) Pvt. Ltd. has the bleakest view on the company's bottom line, estimating an INR 12 billion loss on a consolidated basis, which will be the sharpest in the company's history since listing.

 

Elara Securities expects Instamart's no-fees November offer, which was extended to December, to have pared contribution margin by 20-30 basis points on quarter. This offer is likely to have raised the company's adjusted earnings before interest, tax, depreciation, and amortisation loss by 6% sequentially, the brokerage said. Elara Securities also has the highest estimate for the company's EBITDA loss. However, it expects a 107% year-on-year surge in Instamart's gross order value, which is the value of goods sold through the platform before deducting costs, returns, and taxes.

 

Kotak Securities Ltd. expects the company's net loss to be INR 8.05 billion, which is the lowest estimate among the seven brokerages. It expects an expansion in the contribution margin of Swiggy's food delivery business, which will improve the company's overall EBITDA. However, high competition in the quick-commerce market and costs incurred from new store additions are expected to drag Swiggy's bottom line further into the red, though increased gross order value growth may limit losses, Kotak Securities said. The brokerage, however, sees the growth in gross order value to be hit 3–4% due to the cut in goods and services tax.

 

The company's top line for the December quarter is expected to rise nearly 50% on year to INR 59.38 billion, according to an average of estimates from seven brokerages. This implies a 7% sequential increase in consolidated revenue. ICICI Securities Ltd. has the highest estimate for the company's revenue at INR 63.23 billion, while Kotak Securities has the lowest estimate of INR 56.87 billion.

 

FOOD IS FUEL

A higher mix of advertising revenue and a higher contribution margin from the company's food delivery segment is expected to help Swiggy's revenue growth, Nirmal Bang Equities Pvt. Ltd. said. Contribution margin is an important metric for e-commerce businesses as it represents the incremental money generated for each unit sold after deducting variable costs.

 

Swiggy's food delivery growth is supported by strong user acquisition over the past few quarters and the company is expected to report 20% year-on-year growth in gross order value in the segment, Nirmal Bang said. JM Financial Institutional Securities Ltd., ICICI Securities, and Motilal Oswal Financial Services Ltd. see 16-20% year-on-year growth in gross order value in the food delivery business.

 

"It is pertinent to note that Eternal has stopped reporting gross order value numbers since the September quarter, while Swiggy does not report net order value in the food delivery business, which means market share comparison is not possible," JM Financial said. Elara Securities expects limited impact from operational issues arising due to higher gig worker wages, since robust order volume aided better cost absorption.

 

INSTAMART WOES

Higher competition in the quick-commerce segment and losses from new store additions are expected to affect Instamart's profitability, according to brokerages. Instamart is expected to have added 40 dark stores in the December quarter, taking the total to 1,142.

 

Gross order value for the platform is expected to spike. Nirmal Bang expects a 105% year-on-year surge in gross order value, taking the figure to INR 800.51 billion. Gross merchandise value of the company is expected to benefit from store area growth and improved store utilisation, according to the brokerage. However, the contribution margin for the e-commerce platform is expected to see a larger decline on year. Brokerages see Instamart's EBITDA loss narrowing and an improvement in EBITDA margin as compared to the year-ago quarter. This slight recovery in Instamart's profitability will help to reduce losses for Swiggy, they said.

 

While Instamart's margin may improve in percentage terms, a breakeven is unlikely before FY30 at the adjusted EBITDA level, JM Financial said. The brokerage expects Instamart's competitor Blinkit to break even by the June quarter and this "stretched break-even" point implies that Instamart's valuation would continue to be at a significant discount to that of Blinkit, the brokerage said.

 

Swiggy is expected to report an EBITDA loss of INR 7.62 billion for the December quarter, according to an average of estimates from seven brokerages, as opposed to the INR 1.84 billion EBITDA gain a year ago. Kotak Securities expects an EBITDA loss of INR 5.13 billion while Elara Securities expects an EBITDA loss of INR 9.20 billion for the reporting quarter.

 

All eight research reports available with Informist on the company have a "buy" recommendation on the stock at an average target price of INR 528, which implies a 69% upside to Friday's closing market price of INR 311.75.

 

The following are the December earnings estimates for Swiggy, in INR billion, from seven brokerages in descending order of the estimate of net loss:

 

Brokerage	Net Sales	Net Profit	EBITDA
Kotak Securities Ltd.	56.87	(-)8.05	(-)5.13
Motilal Oswal Financial Services Ltd.	57.77	(-)8.92	(-)8.00
JM Financial Institutional Securities Pvt. Ltd.	59.99	(-)10.45	(-)7.67
Nirmal Bang Equities Pvt. Ltd.	58.98	(-)10.53	(-)7.26
ICICI Securities Ltd.	63.23	(-)10.60	(-)7.39
Nuvama Wealth Management Ltd.	60.43	(-)11.01	(-)8.69
Elara Securities (India) Pvt. Ltd.	58.40	(-)12.05	(-)9.20
Average	59.38	(-)10.23	(-)7.62

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Rajeev Pai

 

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