Margin recovery crucial for Swiggy re-rating despite strong Q1 growth

Swiggy posted 54% Y-o-Y revenue growth in Q1 FY26 but losses widened; analysts say margin recovery will be key for further stock re-rating despite strong GOV momentum

Swiggy reported a revenue of ₹4,961 crore in the first quarter of the financial year 2026 (Q1FY26), a growth of 12.5 per cent quarter-on-quarter (Q-o-Q) and 54 per cent year-on-year (Y-o-Y).

 

The food delivery business’ gross order value (GOV) grew 18.7 per cent Y-o-Y to ₹8,090 crore, whereas the contribution margin (CM) contracted 50 basis point (bp) Q-o-Q to 7.3 per cent. The adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) of the food delivery segment as a per cent of GOV margin dipped 50bp Q-o-Q to 2.4 per cent.

 

The monthly transacting users (MTU) count grew by 16 per cent Y-o-Y.

 

Instamart’s GOV was ₹5,660 crore, up 107 per cent Y-o-Y. The contribution margin expanded 100bp Q-o-Q to minus 4.6 per cent. Dark-store rollouts included 41 new active stores in Q1 (versus 300 stores in Q4). Adjusted Ebitda as a per cent of GOV was minus 15.8 per cent (minus 18 per cent in Q4 and minus 18 per cent in Q1FY25). Instamart reported a contribution margin of minus 4.6 per cent (versus minus 5.6 per cent in Q1FY25).

 

Overall, Swiggy posted a net loss of ₹1,196 crore, up 95 per cent Y-o-Y. For Q1FY26, the adjusted Ebitda loss grew 134 per cent Y-o-Y. Consolidated adjusted Ebitda came in at negative at ₹810 crore.

 

The increase in average order value (AOV) was a positive surprise with AOV up 26 per cent Y-o-Y and up 16 per cent Q-o-Q.

 

Management confirmed there was no seasonality, it was structural. Contribution margin may also improve quickly, but Swiggy has paused store expansion in quick commerce, believing its current network of 4.3 million square feet across over 1,000 dark-stores can support 100 per cent Y-o-Y growth.

 

Swiggy is present in 127 cities and will focus on deeper penetration in top markets. This should help margin expansion. However, it is a gamble, given aggressive competition.

 

The food delivery GOV, up 18.7 per cent Y-o-Y, was driven in part by 10-minute ‘Bolt’ delivery gaining traction and accounting for 10-12 per cent of orders.

 

GOV momentum is strong given a move into Tier-II cities.

 

Food Delivery’s Ebitda margin contracted to 2.4 per cent due to rider availability issues and one-off fixed cost increases. Management reaffirmed its 5 per cent medium-term margin target. Margins may rebound from Q2 onwards, as GOV scales.

 

The company remains confident of maintaining high-teen growth in the near term. The GOV was driven by a growing MTU base, and enabled by better execution, particularly in Tier-II cities. ‘Bolt’ has a minimal impact on AOV and is not dilutive since unit economics are close to platform average.

 

In Instamart, while AOV increased 26 per cent Y-o-Y, order growth was deliberately moderated by phasing out low-value orders.

 

The Maxxsaver basket-building programme helped consolidate orders. Non-grocery penetration is low, but the share of these products will grow over the next few quarters. Contribution of non-grocery in the GOV mix has increased to 18.5 per cent, versus 7 per cent Y-o-Y. The company has unified the rider app for food delivery and Instamart, though dedicated riders serve each business. Gig workers can operate across both. Overall, CM improved 100bp Q-o-Q. The company expects further improvement in the next quarter.

 

However, CM improvement of ₹1.4 per order lagged an increase of ₹9.5 per order Q-o-Q growth in revenue.

 

Swiggy’s food delivery business is now growing quicker than Eternal, and if it achieves parity on Ebitda margins, the valuations could re-rate in Swiggy’s favour. Execution has improved, given the rise in quick commerce AOVs. The unit economics are looking good and the management commentary is optimistic.

 

According to Bloomberg, 15 of the 21 analysts polled post Q1 results last month end (July 31) are bullish on the stock, while three each are either bearish or neutral. Their average one-year target price is ₹458.

 

The stock, which was range-bound since July 31 until Monday, has gained almost 9 per cent in the last three sessions and closed at ₹435.05 on Thursday on the BSE.