Swiggy Gets 'Neutral' Rating From Motilal Oswal After Q2 Results, Here's Why

Motilal Oswal Report

We reiterate our Neutral rating on the stock. Our DCF-based valuation of Rs 475 suggests a 5% downside from the current price.

Swiggy Ltd., through its innovation DNA, has played a pivotal role in effectively inventing both food delivery and quick commerce, leading the way in these categories. However, it has seen a decline in its lead in food delivery and is currently trailing behind its key rival, Blinkit, in quick commerce — both in terms of gross order value growth and profitability.

While the Q-commerce race is only getting started, Swiggy’s re-rating depends on accelerating GOV growth, increasing AOVs, and improving execution in the Q-commerce business.

We expect food delivery orders to grow at 12.5% annually with an average order value growth of 1.4%, leading to a GOV growth of 14.1% over FY24-37 (20.8% GOV CAGR over FY24-29).

Q-commerce is expected to grow faster, with orders increasing at 23.6% annually, AOV growth at 3.2%, and GOV growth at 27.6% (59% GOV CAGR over FY24-29).

Swiggy is expected to report PAT margin of -16.1%/-3.9%/1.8% in FY25/FY26/FY27. Our adjusted Ebitda remains unchanged; however, PAT has been impacted by increased ESOP expenses.

Swiggy delivered Rs 36.1 billion revenues in Q2 FY25, up 11.7% QoQ. The food delivery business’s gross order value grew 14.6% YoY, whereas the contribution margin stood at 6.6%, posting a slight expansion over the previous quarter. Food delivery’s adjusted Ebitda as a % of GOV margin was up 80 bp QoQ at 1.6%.

Instamart’s GOV was Rs 33.8 billion (GOV up 24.1% QoQ/75.5% YoY), whereas the contribution margin was -1.9%. Adjusted Ebitda as a % of GOV was - 10.6%, an improvement of 110 bp QoQ.

Overall, Swiggy reported a net loss of Rs 6.2 billion, marking a 4.7% YoY decline.

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