Swiggy stock won't deliver 'meaningful returns' to investors, warns JM Fin

JM Financial has downgraded Swiggy's stock to 'Reduce' due to concerns about cash burn, slow dark store expansion for Instamart, and the need for a larger capital raise

Analysts at JM Financial have adopted a cautious stance on food aggregator, Swiggy, expecting the stock to not deliver "meaningful returns to shareholders" in the near-term.

 

Predicting an excessive cash burn and the need to raise a "significant" amount of capital, the brokerage has downgraded the stock to 'Reduce' from 'Hold'. JM Financial, however, has raised its share price target on Swiggy stock to Rs 440 from Rs 420.

 

On the bourses, Swiggy shares dropped 2.8 per cent on the BSE to hit a low of Rs 448 per share on Monday. By comparison, the BSE Sensex was down 0.12 per cent at 9:50 AM.  FOLLOW STOCK MARKET UPDATES TODAY LIVE

 

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Why has JM Financial downgraded Swiggy stock?

JM Financial has listed key concerns in Swiggy's business model and expansion plans which, it believes, may threaten the growth of the quick commerce and food delivery company.

 

1) Slowdown in dark store expansion

JM Financial's channel checks suggest that Swiggy is opening new dark stores for its QC business, Instamart, at a rate of 40-50 stores per quarter, down from a peak of 316 stores in the last quarter of the previous financial year (Q4FY25).

 This has come at a time when Blinkit is looking to add 200-250 stores per quarter.

 

"This means Instamart runs the risk of meaningfully falling behind its more ambitious competition," JM Financial said.

 

Notably, Instamart operated 1,062 dark-stores in 127 cities at the end of Q1FY26 as against 1,544 stores by Blinkit and 1,150 stores by Zepto in over 100 and around 75 cities, respectively.

 

That apart, the slowdown also coincides with 'Flipkart Minutes' and 'Amazon Now' entering the QC market and potentially driving competitive intensity over the medium to long term.

 

"We, therefore, remain concerned about Swiggy’s ability to adequately invest in Instamart amidst a deteriorating balance sheet," JM Financial said. 

2) 'War chest' like capital buffer

Given the intense competition in the quick commerce segment, analysts at the brokerage believe Swiggy needs to raise a solid capital buffer to invest in the company's long-term plans.

 

While reports suggest Swiggy is considering a sale of its ~12 per cent stake in Rapido to recapitalise its balance sheet, JM Financial believes it needs a much bigger war chest.

 

"This is because Swiggy’s entire stake in Rapido can fetch it a maximum of $320 million (Rs 2,900 crore) pre-tax, even if we assume the deal happens at the upper end of $2.5 billion-2.7 billion, as indicated by the reports. We, however, think Swiggy needs more than $500 million to support its long-term ambitions in the business," JM Financial noted.

 

In this backdrop, Instamart’s curbed expansion strategy runs the risk of meaningfully falling behind its more ambitious competition despite delivering over 100 per cent year-on-year (Y-o-Y) growth in gross order value (GOV) in Q1FY26 as it has been losing relative share to Blinkit.

 

The Zomato-owned QC business expanded more than 130 per cent in Q1 and plans to double its store count over the medium term.

 

3) Cash burn ahead

Given the two developments, JM Financial estimates that Swiggy’s net cash balance (excluding any proceeds from Rapido stake sale) will fall by Rs 1,000 crore Q-o-Q to Rs 4,350 crore by September 2025 from Rs 8,130 crore in December 2024 and Rs 5,350 crore at the end of June 2025, respectively.

 

This implies that the company's net cash outflow over the last 15 months would be even more than the primary fund-raise of around Rs 4,400 crore at the time of its IPO in November 2024.

 

Further, the brokerage estimates Swiggy’s cash outflow to remain high at least till late-FY27 because Instamart’s Adjusted Ebitda losses are not likely to come down at an accelerated pace even if a) it turns contribution margin break-even as per the management’s latest guidance, b) new dark store addition remains muted at ~40-50 per quarter (from a peak of 316 stores in 4QFY25), and c) competitive pressure remains relatively modest, the brokerage said. 

Road ahead for Swiggy

JM Financial believes Instamart may have to move to an inventory-led business model, like Blinkit, as it offers several operational benefits over the marketplace-based business model.

 

These benefits include ability to directly source merchandise from brands/manufacturers without having to engage third-party-sellers; to introduce new, underserved categories or merchandise that third-party sellers may not be currently investing in; seek better commissions from brands/manufacturers by leveraging the platform’s scale advantage; offer high-quality, competitive-priced products under its own brand names; and expand operating margins and cash flows due to better product commissions and other operational efficiencies.

 

Swiggy stock valuation

JM Financial has increased Swiggy's share price target to Rs 440, after factoring-in stake sale benefits from Rapido, which it expects to materialise by H2FY26.

 

It values Swiggy’s food delivery business at 45x EV/Adjusted Ebitda, Instamart business at 0.5x EV/GOV multiple, and out-of-home consumption basis 1x EV/GOV multiple.