Swiggy has recently cleared a fundraising plan of up to Rs 10,000 crore, through a combination of public or private offerings to shore up its balance sheet and gain market share in India’s fiercely competitive quick-commerce and food delivery markets.
Fresh capital for wrong purposes?
Ambit says the fresh capital could be used as a war chest if competition becomes more intense. “Zepto now holds $0.9 billion in net cash after its recent fundraise, and Zomato’s Blinkit has roughly twice that amount. Amazon and Flipkart are also unlikely to sit quietly as quick commerce expands beyond grocery. This means the space is entering another round of aggressive spending, deep discounts and expansion,” it said.
In Ambit’s view, Swiggy may be forced to spend more just to maintain its position. The brokerage has also expressed concerns about the efficiency gap between Swiggy’s Instamart and Blinkit.
Slower growthInstamart has slowed its pace of expansion, adding only about 81 dark stores in the last two quarters. Blinkit added 515 stores in the same period. Blinkit has also grown its user base far faster, adding 7.1 million monthly transacting users, compared with 2.2 million for Instamart. Blinkit now serves around 190 cities, while Instamart is in 128 cities.Swiggy believes the gap in the dark store area is not too large, with Instamart’s area at 24% lower than Blinkit’s. But the brokerage disagrees and finds the operational gap significant.
Ambit values Swiggy’s core food delivery business (excluding Instamart) at Rs 267 per share, including Rs 31 per share in cash. It values Instamart at just Rs 60 per share. Together, this gives a fair value of Rs 327. The reason for the low Instamart valuation is Ambit’s cautious view on quick commerce.
It argued that the market is not unlimited, as many believe, but capped. “Even if one assumes aggressive growth — 2,000 orders per dark store per day, 10 monthly purchases per user and 60% of households able to afford quick commerce — India may support a maximum of around 12,000 dark stores.”
The food delivery company recently reported a higher loss of Rs 1,092 crore for the September quarter. Instamart did not see any improvement in profitability even in the last two quarters when competition was relatively low. With competition rising again, Ambit expects Instamart to turn EBITDA positive only by FY30.
However, the quick commerce GOV (gross order value) growth accelerated 108% YoY to Rs 7,022 crore during the second quarter, with 0.9 million MTUs (monthly transaction users) added.
Ambit expects around 8,500-9,000 dark stores to be operating by FY27. That means most of the market capacity will already be occupied, leaving little room for hyper-growth beyond that.
Intense competition
Another major concern is competition. The market is reported to be underestimating how intense competition will get. Zepto’s fresh funding means it can again push hard on discounts and expansion. As quick commerce companies move into non-grocery items, they start competing with Amazon and Flipkart, who will not remain passive.
“Quick commerce is a utilisation-based business and profitability comes only when each dark store handles a high number of orders. Instamart needs around 1,850 orders a day per store to break even, while Blinkit needs around 1,440. Even a small loss of orders because of competition can delay profitability by years,” the broker said.
“Even if we assume Zomato’s current valuation is fair, Swiggy would still trade at a discount because of lower scale and weaker profitability. To earn even a 15% return on Instamart, investors would have to assume that Instamart is almost as efficient as Blinkit, which is very aggressive,” it added.
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