Add Swiggy Ltd For Target Rs. 540 By InCred Equities
Nice and steady
* 2QFY26 results generally better than consensus expectations.
* All QC business metrics were encouraging.
* Maintain ADD rating on the stock with an unchanged target price of Rs540.
2QFY26 earnings summary
Swiggy’s consolidated 2QFY26 revenue at Rs55,610m (up 12.1%/54.4% qoq/yoy) was 5% above consensus estimate, driven by growth across BUs. The EBITDA margin was modestly better too, led by flat contribution margin and 40bp qoq improvement in adjusted EBITDA margin of food delivery (FD) business, coupled with 200/370bp qoq improvement in contrition/adjusted EBITDA margin of the quick commerce (QC) business. Commentary was encouraging for both FD/QC, and the aim is to sustain the current momentum driven by innovation and store maturity-led higher throughput. Growth remains a key priority in the FD business while 5% of GOV remains the steady-state margin aspiration
Focusing on high lifetime-value customers in QC business
QC GOV grew by 108% yoy led by improvement in consumer proposition through category expansion (30k+ SKUs) and better value {Maxxsaver and Quick India Movement (QIM) sale} and rising brand partnership in Maxxsaver. Contribution losses reduced to ~30% qoq, while margin improved by 202bp qoq and adjusted EBITDA margin improved by 375bp qoq to -12.1%, primarily driven by operating leverage and improvement in dark store utilization. Dark store addition (+40) moderated as the focus shifted to improving throughput (orders/dark store/day improved by 5% qoq to 1,025 vs. 2,000+ at full capacity). The company is also focusing on improving retained user cohort GOV by cannibalizing order growth in favour of profitable basket value.
Food delivery GOV growth within the 18-20% guided range
Gross order value (GOV) grew by 18.8% yoy led by monthly transacting users (MTU), order growth & despite macroeconomic uncertainty & unseasonal rainfall, while adjusted margin improved by 44bp qoq to 2.8%. Management highlighted that heightened competitive action (lower subscription fee and reduced minimum order) led to tweaking of Swiggy One proposition to avoid loss of users and orders but was offset by an increase in platform fee.
Maintain ADD rating with an unchanged target price of Rs540
We maintain our ADD rating on Swiggy with an unchanged target price of Rs540 using the sum-of-he-parts (SOTP) methodology. We shift to FY28F earnings and assign the food delivery business a multiple of ~32x FY28F EV/adjusted EBITDA (40x FY27x earlier), 1.4x (2x) FY28F EV/GOV multiple to quick commerce, 1.1x (1.6x) FY28F EV/GOV multiple to out-of-home consumption, and 1.6x (1.6x) FY28F EV/sales multiple to the supply chain business to arrive at our target price, estimates, and valuation. Higher discount to account for cash burn and a longer time horizon helps maintain our target price despite shifting to FY28F earnings. Downside risk: Increase in competitive intensity.
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