Buy Swiggy ltd For Target Rs.350 By Emkay Global Financial Services Ltd
Swiggy’s Q4FY26 results demonstrated improved execution in the food delivery business, with 22% YoY GOV growth and 30bps adj EBITDA margin expansion. However, QCom growth was weaker than expected (-0.7%/4% QoQ GOV/NOV growth), though contribution margin expanded by 70bps QoQ to -1.8% of GOV. The management has maintained its Q1FY27 contribution margin breakeven target. While Swiggy’s QCom business is challenged by increased competitive intensity and weak profitability, its food delivery business continues to see strong traction and margin improvement. We maintain BUY and DCF-based TP of Rs350.
Strong performance in the food delivery business
Food delivery reported strong performance, with 22.6% YoY GOV growth – ahead of the company's 18-20% guidance. Growth was volume-led, with 21% YoY MTU growth, which strengthens conviction on demand durability. Adj EBITDA grew 39.8% YoY to Rs3.0bn, with margin expanding by 30bps QoQ to 3.3% of GOV. Margin expanded despite continued investments in affordability (99-Store, Toing) and speed (Bolt, One BLCK) propositions, validating the shift from discount-led to utility-led growth. Swiggy has further narrowed the profitability gap with Eternal's food delivery business. The nearduopoly market structure should allow Swiggy to compound GOV with expanding margins. We build in ~38% adj EBITDA CAGR over FY26-28E, on the back of ~20% GOV CAGR and 90bps adj EBITDA margin expansion, with the management's medium-term 5% adj EBITDA margin guidance unchanged.
QCom: Currently optimizing for profitability
QCom growth disappointed, as Swiggy reduced discounts and rolled back the no-fee campaign to drive margin improvement. Only 7 dark stores were added (count: 1,143), with the management noting that the existing footprint can support 2x current volumes. The Q1FY27 contribution margin breakeven target is reaffirmed, and Swiggy is targeting Rs1trn NOV and 4-5% adj EBITDA margin in the medium term. We read this as Swiggy prioritizing profitability over growth. We believe growth is likely to re-accelerate once contribution margin breakeven is achieved. With QCom likely consolidating to 2-3 large players over the medium term, scale leadership, along with unit economics, is critical.
Outlook and valuations: QCom optionality riding on food delivery annuity
While Swiggy has catch-up to do with peers in QCom, its food delivery business is seeing strong improvement. We see Swiggy as a strong food delivery franchisee, with an optionality to scale in the QCom business. We maintain BUY and DCF-based TP of Rs350. We value its food delivery business at Rs595bn (Rs215 per share), which implies 31x EV/adjusted EBITDA on FY28E food delivery adjusted EBITDA. Our valuation for the QCom business is Rs175bn (Rs64 per share), which implies 0.52x EV/NOV on FY28E QCom NOV.
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