Swiggy's Rapido Exit May Help Ease Cash Burn, Narrowing Gap With Eternal
The Rapido stake sale will boost cash on Swiggy's books by 45% to Rs 7,750 crore – sufficient for eight quarters.
Swiggy Ltd. will raise Rs 2,400 crore through its exit from Rapido. which can help ease the cash burn and narrow the gap with rival Eternal Ltd.
The company's cash balance at the end of the June quarter was Rs 5,350 crore. The cash burn during the period was Rs 1,053 crore. The average cash burn in the last two quarters was Rs 1,030 crore.
The Rapido stake sale will boost cash on Swiggy's books by 45% to Rs 7,750 crore – sufficient for eight quarters.
On the other hand, Zomato operator Eternal Ltd. had a cash balance of Rs 18,860 crore in the first quarter. The average quarterly cash surplus was Rs 278 crore. The company benefits from higher treasury income i.e., capital gains from parking cash in different liquid securities.
Cash Burn Concerns
Swiggy's cash burn has been increasing due to multiple factors like diversification into non-core ventures (Toing, Giftables, Swiggy Scenes, Pyng, and Snacc), loss of food delivery market share, and widening losses in quick commerce.
Depleting cash is a risk to the company as it may hinder expansion and make it harder to compete with new rivals in the quick commerce segment like Amazon Now and Flipkart Minutes. Notably, Swiggy is adding only 40-50 stores per quarter versus 200-250 stores by Eternal-owned Blinkit.
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Analysts at Morgan Stanley said the Rapido stake sale would temporarily strengthen Swiggy's balance sheet. Although, it will remain weaker compared to the competition.
Separately, Swiggy has announced the transfer of its Instamart business into a wholly owned step-down subsidiary to create an efficient and more focused entity for the quick commerce business.
The holding company type structure could enable value unlocking and fundraise at the quick commerce level.
Analysts at Nomura said the restructuring is a step in the direction of enabling Instamart to own inventory in its quick commerce business, once Swiggy becomes an Indian Owned and Controlled Company (IOCC) when its domestic shareholding crosses 51%.
