Quick-commerce margins and execution are key to gains in Swiggy stock

Management indicated that the quick commerce segment saw peak losses in Q4 and there will be progressive improvement

Even as Swiggy reported a satisfactory revenue growth, the Q4 losses were higher than consensus due to the quick commerce (qcom) business.

 

Food delivery gross merchandise value (GMV) grew at 17.6 per cent year-on-year (Y-o-Y) and operating profit was at ₹210 crore, above consensus.

 

Quick commerce GMV doubled Y-o-Y, led by higher monthly transacting users (MTUs), but margins dipped and Q4’s adjusted operating loss for qcom was ₹840 crore (-18 per cent margin on gross order value or GOV).

 

The management indicated that the qcom segment saw peak losses in Q4 and there will be progressive improvement.  Competition has not intensified.

 

Overall, Q4 revenues were up 10 per cent quarter-on-quarter (Q-o-Q) but higher operating expenditure (up 30 per cent Q-o-Q) led to losses at the operating level growing 33 per cent Q-o-Q to ₹960 crore.

 

The dark store count rose by 316 new stores during Q4 taking store count to 1,021. Net losses were ₹1,080 crore in Q4 (₹790 crore in Q3).

 

The pre-initial public offering (IPO) shareholder lock-up is due for expiry, which may add to volatility.

 

In quick commerce, the management expects break-even in 3-5 quarters and says that the inventory-led model on qcom can give 30-35 basis points (bps) improvement but at the cost of holding inventory.

 

At some time in the future, Swiggy may consider being an Indian owned and controlled company but not in the near term. The guidance on break-even has been moved back from Q2FY26. 

 

Quick commerce losses are expected to trend lower with network economics improving and better average order value (AOV) & take-rates (commissions) with lower customer incentives.

 

City-wide coverage expansion for dark store network has been done and now the focus is on deepening presence and not wider expansion.

 

In the mid-term, food delivery growth guidance is intact at 18-22 per cent but there’s a stronger focus on expanding margins. 

 

The 10-minute food delivery dubbed Bolt is being built out thoughtfully and the management does not see any significant impact on unit economics.

 

The margin structure of Bolt is not dilutive to the platform. New users acquired through Bolt have shown 4-6 per cent higher monthly retention than the platform average.

 

In a direct comparison, food delivery growth is slightly higher while qcom growth is slightly lower than Zomato. Swiggy reiterated guidance of 18-22 per cent Y-o-Y medium-term growth in food delivery. It will be accompanied by a slowdown in store expansions and a potential delay in qcom break-even compared to earlier guidance.

 

Swiggy needs to sustain margin upside, given its 43 per cent market share in a two-player structure in food delivery. Quick commerce’s competitive intensity is higher but may not grow further. Swiggy’s qcom business must turn around on profitability. 

 

Overall, cash burn, including capex, stood at ₹1,200 crore versus ₹700 crore in Q3.

 

Lower store capex, improving store economics as the current base matures and increase in order throughput are desirable.

 

There may be a shift in marketing spend towards customer retention versus acquisition.

 

There’s been a deep correction over the past five months, and this could make the stock look attractive at current levels.

 

There’s likely to be price volatility given the lock-up expiry.

 

Analysts will be monitoring improvements in qcom margins, while assuming Swiggy will be able to maintain food delivery growth and tighten execution.