Swiggy’s Instamart strategy may erode shareholder value, says JM Financial

Swiggy Ltd 's quick commerce business Instamart risks destroying shareholder value if it continues with its current strategy of prioritising near-term margin improvement over scale, JM Financial said in a note, downgrading the stock and flagging concerns over the company’s competitive positioning.

The brokerage said Instamart is caught in a “growth-versus-profitability deadlock”, with management focusing on achieving contribution margin breakeven while scaling back investments needed to defend market share.

“Management’s apparent reluctance to compete full-on is racking up market share loss,” the brokerage said, warning that the strategy could “put the business in an orbit of irrelevance soon”.

Market share loss risk amid intensifying competition

The brokerage flagged that despite a recent capital raise, Swiggy has not accelerated investments in dark store expansion or customer acquisition, which are key to sustaining growth in the quick commerce segment.

Instead, the company appears to be focused on improving contribution margins, a move that may be leading to a loss of market share at a time when competition from both new-age and traditional players is intensifying.

“This strategy is perplexing… particularly because competitive dynamics have only stiffened,” JM Financial said, referring to aggressive expansion by traditional e-commerce players.

JM Financial added that Instamart’s growth is expected to moderate in the coming quarters, even as losses remain elevated, pointing to limited visibility on a credible turnaround.

Food delivery strength not enough

While Swiggy’s core food delivery business continues to show stable growth and improving margins, the brokerage said it is unlikely to offset losses from Instamart and other emerging segments in the near term.

“Even if its food delivery segment surprises positively… Instamart with its current strategy will only destruct value for shareholders,” the report said.

At a consolidated level, the company is expected to remain loss-making for the foreseeable future, stressing the drag from its quick commerce operations.

Given the lack of a clear path to profitability, JM Financial said a potential acquisition by a larger player may be the most viable outcome for investors.

"Under these circumstances, the best possible outcome for investors in our view is to hope that a larger player acquires Swiggy”, the brokerage said, highlighting the absence of a sustainable turnaround roadmap, and advising investors to "avoid the stock".

JM Financial’s downgrade indicates broader concerns around Swiggy’s capital allocation strategy and its ability to compete effectively in a rapidly evolving quick commerce landscape. With growth slowing, competition intensifying and profitability still elusive, the brokerage said the company faces a challenging road ahead unless it recalibrates its approach to balancing scale and margins.

“Any near-term narrowing of losses should be seen as a temporary patch-up rather than a sustainable structural gain,” it added.

The shares of Swiggy Ltd ended 3.81% higher at ₹279.55 apiece on the National Stock Exchange on Wednesday. The company's stock has fallen nearly 16% over the past year, underperforming the Nifty Midcap 50 index that has risen over 15% during the same period.

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