Swiggy's Rapido stake sale to help up cash kitty, but concerns remain

The stake sale boosts Swiggy's cash reserves as it shifts Instamart into a new subsidiary to prepare for an inventory-led model amid rising competition

Swiggy made two important announcements on September 23. In April 2022, Swiggy had acquired a 12 per cent stake in Rapido (unlisted) for ₹1,000 crore and it announced that it has sold that 12 per cent stake in Rapido to Prosus and Westbridge to raise ₹2,400 crore.

 

This monetisation raises the cash balances of Swiggy and gives it financial resources to continue to invest in its quick commerce (qcom) Instamart business. Subject to shareholder approval, Swiggy has also approved the sale and transfer of Instamart to Swiggy Instamart Private Limited, an indirect step-down wholly-owned subsidiary, incorporated in India. Instamart is currently held directly in the parent listed company, Swiggy.

 

This restructuring may help enable Instamart to own inventory as and when Swiggy becomes an Indian Owned and Controlled Company (IOCC) with a domestic shareholding above 51 per cent. It could mirror Eternal’s change of business model for Blinkit recently, when it became an IOCC. Switching to an inventory-led model can improve the contribution margin of the Instamart business – Eternal has guided for 100bp improvement from the Blinkit restructuring.

 

The stake sale will fetch the company ₹2,400 crore (pre-tax), less than consensus valuation estimates of ₹2,900 crore. Swiggy is likely to report net cash outflow of ₹1,000 crore in Q2FY26, on top of ₹2,800 crore outflow reported in the prior two quarters. Hence, the stake sale is only a temporary solution and that it will only shore up Swiggy’s depleting cash balance for a few quarters. The company may need to raise more funds, given the burn in the competitive qcom  business.

 

Prosus is already a shareholder in Swiggy with 23.3 per cent holding as of June ’25. The slump sale of Instamart (comprising all assets, liabilities, employees, contracts, IP, and licences under the ‘Instamart’ brand) to Swiggy Instamart Private Ltd, is likely to go through after Q3FY26.

 

 

Despite Instamart delivering over 100 per cent year-on-year (Y-o-Y) gross order value (GOV) growth in recent quarters, it has been losing relative share to Blinkit, as the latter has expanded GOV over 130 per cent. Blinkit’s guidance is that it plans to double its store count over the medium term, hence, Instamart’s strategy of curbed expansion runs the risk of falling behind even more.

 

Swiggy’s cash balance on the balance sheet remains a cause of concern. It may need a much larger infusion of better than $500 million to fully support its qcom ambitions. Many investors do view Instamart favourably because of its large total addressable market (TAM), its market positioning and the proven track record in food delivery.

 

But Eternal, which is larger, chose to recapitalise last financial year, despite having no balance sheet stress. Swiggy could consider this strategy of raising more funding since it will find it harder to raise resources as it further depletes its balance sheet to meet operational challenges or combat rise in competitive intensity.

 

Instamart’s adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) losses may not come down much even if it turns contribution margin break-even as per the management’s latest guidance, expenditures on new dark store additions remains muted at 40-50 per quarter (from a peak of 316 stores in Q4FY25), and competitive pressure remains at around current levels. Given aggressive expansion by Blinkit and the entry of newcomers like Amazon Now, competitive intensity is actually likely to ramp up.

 

Swiggy’s net cash balance (excluding proceeds from the Rapido stake sale) is expected to fall by around ₹1,000 crore quarter-on-quarter (QoQ) to ₹4,350 crore by September ’25 from ₹8,130 crore in December ’24 and ₹5,350 crore in June ’25. This implies net cash outflow over the last 15 months is more than the fund-raise of ₹4,400 crore in the IPO in November ’24. Some analysts estimate cash outflow will remain high till late-FY27.

 

Clearly, there are concerns despite the fund raise. However, analyst opinion is divided. Some analysts have pointed out that Instamart is valued (implied valuations) at much lower Enterprise Value/GOV compared to Blinkit in Sum of the Parts valuation models assuming the food delivery business is valued at around the same EV/GOV multiple for both businesses.