Swiggy stock is in focus after Jefferies retained its Buy rating on the food delivery and quick-commerce company, with the brokerage seeing potential for an 80-basis-point improvement in margins at Instamart following its move towards Indian-owned and controlled company (IOCC) status. Jefferies has retained its Rs 435 price target on Swiggy, implying 59.9% upside from the stock's previous close.
The brokerage said shareholder approval of a 49.5% cap on aggregate foreign ownership takes Swiggy a step closer to completing its IOCC transition. The move could have a more significant impact on Instamart, Swiggy's quick-commerce business.
Jefferies expects the company to move towards a first-party, or inventory-led, model, allowing Instamart to directly own and sell inventory alongside its existing marketplace structure.
The brokerage expects the transition to take place over the next two to four quarters, with the groundwork already underway. The brokerage does not expect a major disruption to customer experience or supplier relationships during the migration.
That shift could provide greater control over assortment and inventory management and, according to Jefferies, potentially deliver around 80 basis points of margin upside. However, the inventory-led model would also require greater investment in inventory and working capital.
The IOCC move could also help Swiggy reduce potential regulatory risks around its quick-commerce operations. While Jefferies notes that the company's current model is compliant, the new ownership structure could provide greater flexibility as Swiggy expands Instamart.
There is, however, a near-term stock-market overhang. Jefferies expects passive fund outflows once the revised foreign ownership framework is implemented. Based on the brokerage's assessment, the process could take several weeks after the new limit is reflected in depository systems.
Swiggy's foreign ownership was already close to the proposed threshold, with domestic ownership at 50.5% and foreign ownership at 49.5% as of August 2.
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