Swiggy Shares Jump Nearly 5% As Jefferies Sees 60% Upside

Shares of foodtech major Swiggy surged nearly 5% to hit an intraday high of ₹285.35 apiece on the BSE on today after brokerage firm Jefferies turned positive on the stock following shareholder approval for the company’s foreign ownership cap.

The stock pared some of the gains later in the session, trading 3.4% higher at ₹280.30 apiece around 2:55 PM IST. At the time, Swiggy’s market capitalisation stood at ₹77,385.3 Cr (around $8.1 Bn).

The brokerage firm has initiated a ‘Buy’ rating on Swiggy with a target price of ₹435 per share, representing a 60% upside from the stock’s last closing price. The brokerage said the company has moved a step closer to convert into an Indian-owned and controlled company (IOCC) after shareholders approved a 49.5% cap on aggregate foreign ownership.

According to Jefferies, the move supports Swiggy’s plan to transition Instamart towards a first-party, inventory-led model. The brokerage estimates that this could provide around 80 basis points of margin upside for the quick commerce business.

“The move supports management’s plan for a 1P (inventory-led) model at Instamart, which could drive a 80 bps margin upside. While cap may help mitigate potential regulatory risks despite current quick commerce models being compliant, passive outflows are likely once the new foreign ownership framework is implemented, and it could take a few weeks for this to unfold,” the brokerage said. 

On Tuesday, more than 99.9% of shareholders at Swiggy’s annual general meeting voted in favour of capping foreign ownership at 49.5% and changing the company’s Articles of Association.

Swiggy’s board had approved the proposal last month as the company sought Indian-owned and controlled company (IOCC) status under the Foreign Exchange Management Act (FEMA). Swiggy had tried to get the status in May, but the proposal failed after receiving around 72% of the votes, short of the 75% required for a special resolution.

The approval could now allow Swiggy to change Instamart’s business model from a marketplace, where sellers stock and sell products, to an inventory-led model, where Swiggy can buy products directly from brands and sell them to customers.

Jefferies said Swiggy could see benefits similar to Eternal, which also became an IOCC and subsequently reported improvements in growth and margins.

Swiggy’s Q1 Performance

Swiggy’s food delivery revenue grew 23% YoY to ₹2,208 Cr in the June quarter, while segment profit rose 48% to ₹299 Cr. Its quick commerce arm Instamart also continued to grow, with revenue jumping 53% YoY to ₹1,232 Cr, while losses narrowed 18% to ₹651 Cr.

The company’s Supply Chain & Distribution segment reported a 41% YoY growth in revenue to ₹3,195 Cr, while losses narrowed sharply to ₹8 Cr. Newer businesses, including Toing and Crew, generated ₹51 Cr in revenue, although their combined losses widened to ₹131 Cr as Swiggy continued to invest in the businesses.

Meanwhile, budget focused food delivery arm Toing has expanded to 50 cities, with most new users being first time or dormant customers, suggesting it is helping expand the company’s customer base rather than cannibalising its core business. 

However, its food delivery margins came under pressure during the quarter due to temporary factors, including LPG supply disruptions that resulted in order cancellations, annual wage revisions and higher spending to ensure delivery partner availability.

Despite the pressure, Swiggy retained its medium-term guidance of 18-20% GOV growth and its long-term adjusted EBITDA margin target of 5%.

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