"Swiggy is transitioning from a phase where growth was a compromise against profitability. Noticeably, over the last four quarters, it deliberately chose CM (Contribution Margin) over unbridled growth, evident from rebound in CM from a peak loss of negative ~5.6 per cent in Q4 FY25 to contribution break-even in Q1 FY27 to an era where growth actively drives profitability," Anand Rathi said.
The brokerage expects Swiggy to focus on narrowing its growth gap with rival Blinkit over the next two quarters. This could push CM towards the higher end of the company's guided range of 0 per cent to -1 per cent, translating into higher EBITDA losses, it noted.
While the quick commerce (QC) business has stabilised, the core food delivery (FD) segment continues to be Swiggy's primary profit generator, Anand Rathi said. The segment reported an EBITDA margin of around 3.1 per cent alongside a 17.4 per cent year-on-year (YoY) expansion in gross order value (GOV) in Q1 FY27.
The brokerage said cash flows from food delivery, along with treasury income, were expected to cover operational losses from quick commerce by FY28 or the first half of FY29. Swiggy had a cash balance of around Rs 14,000 crore as of Q1 FY27, it added.
At present, Anand Rathi said the stock trades at an attractive valuation of around 23 times its FY28 estimated EBITDA, offering exposure to QC and DO (Dining Out) for free.
The brokerage's revised rating is based on a valuation of 30 times FY28 estimated adjusted EBITDA for the FD business, at a discount of around 15 per cent to Zomato.
With that being said, Anand Rathi flagged potential market share losses due to intense competition and slower growth in the food delivery segment amid a slowdown in consumption as key risks to its outlook.
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