Stock Of The Day: Swiggy Treads With Caution As Q3 Results Pressure Likely To Persist On Rivalry

Shares of India's food delivery platform Swiggy Ltd. tumbled on Wednesday ahead of its third-quarter results as losses are likely to persist amid fierce competition.

Swiggy shares have found very few takers as the stock has fallen over 30% from its peak on Dec. 23 last year. The counter is near its issue price of Rs 390 per share after it fell as much as 4.5% to Rs 414.3 apiece.

Shares rose soon after it listed on the national bourses to a high of Rs 617.3 apiece, and since then have been on a downtrend on competitive pressures. The decline in Wednesday's trade triggered the stock to fall below the 14-day simple moving average.

The immediate support for the stock will be at the Rs 400 mark and a fall below that could send the stock towards its listing price. On the upside, a strong close above the Rs 460 level could trigger a renewed bullish momentum.

Eleven of the 16 analysts tracking the company have a 'buy' rating, two suggest a 'hold', and three have a 'sell', according to Bloomberg data. The average of the 12-month analysts' price target implies a potential upside of 40%.

Swiggy's losses are set to worsen as its rapid delivery unit Instamart’s margins are set to shrink, according to Bloomberg. While food delivery and rapid delivery businesses are poised to remain strong, fierce competition has triggered margins to erode, it said.

Zomato's unexpected slowdown in its food delivery business in Q3 triggered a wave of investor caution in the industry. Further, the food aggregator giant expects losses to continue in the near term.

However, Swiggy will be among the winners in India's rapidly booming quick commerce space, according to Bernstein Research. Quick commerce is an attractive category and Swiggy is one of the core beneficiaries of the shift. The growth runway remains robust with Swiggy expected to grow over 90% CAGR in the medium term, Bernstein said.

After a period of intense competition and a frenzy of dark store openings, Zomato’s Blinkit, Swiggy Instamart, and Zepto are expected to moderate their expansion plans, according to a recent report by HSBC Global Research.