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Key operating metrics could improve meaningfully in 2Q

Swiggy will report its first post-IPO results tomorrow and we expect an improving trend in most key operating metrics. In food delivery, the company is likely to deliver 6% QoQ growth, marginally better than 5% delivered by Zomato (BUY, TP INR 300), aided by growing traction for its co-branded credit card with HDFC Bank. Segment profitability too is likely to improve meaningfully to 1.8% (as % of GOV) vs. 0.8% in 1Q, on the back of lower platform discounts and operating leverage benefits. While in Quick Commerce (Instamart) we forecast GOV growth of 15% QoQ vs. 25% delivered by Zomato’s Blinkit, losses at contribution margin level could come down to -1.7% vs. -3.2% in 1Q, driven by an uptick in take-rates and dark store and warehousing level operating leverage. At a consol. level, Adj. EBITDA loss could subside to INR 2.7bn vs. INR 3.5bn in 1Q. Overall, we expect investors to focus on the company’s relative performance vs. Zomato and management commentary on profitability improvement in food delivery and quick commerce businesses.

* Food delivery GOV can grow 6% QoQ, lower discounting should drive margin expansion:

We forecast sequential GOV growth of ~6% in 2Q on the back of 5% order volume growth. We see MTUs growing to 14.4mn vs. 14mn in 1QFY25, whereas ordering frequency and AOV’s could grow c.3%/1% QoQ, respectively. Gross take-rates are likely to be sequentially flat at 25.3% in 2Q. As a result, sequential reported revenue growth would also be in line with GOV growth of c.6%. We expect contribution margin (as % of GOV) to expand to 7.0% from 6.4% in 1Q, mainly on account of lower platform discounts. Further, Adj. EBITDA margin (as % of GOV) can expand 100bps sequentially to 1.8% from 0.8% in 1Q, aided by operating leverage.

* Quick Commerce GOV can grow 15% QoQ, take-rate and operating leverage should drive margin expansion: We expect sequential GOV growth of 15%, led by 12% increase in order volumes that, in turn, should be driven by MTU increase from 5.2mn to 5.8mn. Gross take-rates can expand to 15.5% vs. 14.8% in 1Q due to improving product commissions and ad income. We see contribution margin losses coming down to -1.7% (as % of GOV) vs. -3.2% in 1Q due to take-rate expansion and dark store and warehousing level operating leverage. Adj. EBITDA margin (as % of GOV) can improve 188bps sequentially to -9.8% due to lower fixed cost.

* Consol. level losses likely to meaningfully come down: At a consol. level, we expect meaningful reduction in losses on the back of significant improvement in profitability in food delivery and quick commerce businesses. Accordingly, we forecast Adj. EBITDA loss to subside to INR 2.7bn vs. INR 3.5bn in 1Q, whereas reported EBITDA loss can come down to INR 4.6bn from INR 5.4bn. Overall, PAT level losses are also expected to narrow to INR 4.8bn from INR 6bn in 1QFY25.

* Swiggy 2QFY25 earning call details: Date: December 3, 2024 (Tuesday). Time: 05:00 PM IST.

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