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An appetizing start

Decent growth across FD and quick commerce

* Swiggy delivered INR36.1b revenues in 2QFY25, up 11.7% QoQ. The food delivery business’s GOV grew 14.6% YoY, whereas the contribution margin stood at 6.6%, posting a slight expansion over the previous quarter. FD’s adjusted EBITDA as a % of GOV margin was up 80bp QoQ at 1.6%.

* Instamart’s GOV was INR33.8b (GOV up 24.1% QoQ/75.5% YoY), whereas the contribution margin was -1.9%. Adjusted EBITDA as a % of GOV was - 10.6%, an improvement of 110bp QoQ.

* Overall, Swiggy reported a net loss of INR6.2b, marking a 4.7% YoY decline.

Our view: FD stable; long Q-commerce runway to decide winners

Decent food delivery growth and strong growth outlook: Swiggy posted decent YoY growth of 14.5% in GOV for 2QFY25 (Zomato’s GOV grew 21.4% for the same period). What was interesting, however, was Swiggy’s guidance for growing faster than the “category average” (aka Zomato) over the medium term in food delivery. As we have written in our initiation report (“Quick” Commerce, delayed gratification on 18th November), Swiggy’s food delivery business is on a strong footing and is part of a stable duopoly. We believe GOV growth in India could be 20%+ in the near term, and a tug-of-war on market share should not meaningfully alter valuations for either of these businesses unless a meaningful change emerges in the growth outlook.

* Expect stable and expanding margins in FD, barring any major investment push: Swiggy projects sustainable adjusted EBITDA margins of approximately 5% for its food delivery business in the medium term. We believe this to be broadly achievable as the unit economics are now stable, barring a major investment push toward Bolt, its 10-minute food delivery service.

* Bolt’s impact could be far-reaching; we wait and watch for now: Swiggy has rolled out Bolt across 400 cities. Within eight weeks of its launch, Bolt achieved 5% of Swiggy's total food delivery orders. While this could be a joker in the pack and could meaningfully impact food delivery volumes, we wait and watch how the AOVs for this service pan out.

* Q-commerce growth accelerates to 75.5% YoY and AOV expands as well: Q-commerce’s GOV growth of 75.5% YoY and AOV increase of INR499 was encouraging. While the growth was slower than that of Blinkit, Swiggy has outlined measures to accelerate this GOV growth.

* We are, however, slightly unsure about the mega hubs strategy: While we are enthused by Swiggy's aggressive approach to expanding its SKU range— tripling the selection in its dark stores over the past year and planning to house up to 20,000 SKUs in larger stores—there are a few concerns. The introduction of mega pods, with an extended capacity of over 50,000 SKUs, could potentially compromise the 10-minute delivery promise, a critical marker in competing against Blinkit and Zepto. Maintaining ultra-fast delivery times amidst such expansions will be a key challenge for Swiggy's Instamart.

* Too early to decide the winners in Q-commerce: That said, we believe it is too early to decide the winners in the Q-commerce race. We will monitor Swiggy’s AOV and take rates for quick commerce to gauge the success of its strategy.

Valuation and view

* Swiggy, through its innovation DNA, has played a pivotal role in effectively inventing both food delivery and quick commerce, leading the way in these categories. However, it has seen a decline in its lead in food delivery and is currently trailing behind its key rival, Blinkit, in quick commerce — both in terms of GOV growth and profitability. While the Q-commerce race is only getting started, Swiggy’s re-rating depends on accelerating GOV growth, increasing AOVs, and improving execution in the Q-commerce business.

* We expect food delivery orders to grow at 12.5% annually with an AOV growth of 1.4%, leading to a GOV growth of 14.1% over FY24-37 (20.8% GOV CAGR over FY24-29). Q-commerce is expected to grow faster, with orders increasing at 23.6% annually, AOV growth at 3.2%, and GOV growth at 27.6% (59% GOV CAGR over FY24-29). Swiggy is expected to report PAT margin of -16.1%/-3.9%/1.8% in FY25/FY26/FY27. Our adjusted EBITDA remains unchanged; however, PAT has been impacted by increased ESOP expenses. Our DCF-based valuation of INR475 suggests a 5% downside from the current price. We reiterate our Neutral rating on the stock.

Overall decent set of numbers; aims to double dark store capacity by FY25

* Swiggy reported 2QFY25 net revenue of INR36.1b (+11.7% /30.4% QoQ /YoY).

* Food delivery GOV stood at INR71.9b (up 5.6%/14.6% QoQ/YoY). The food delivery business is expected to grow in high-teens for FY25.

* Instamart GOV came in at INR33.8b (up 75.5% YoY). It plans to double the dark store count by FY25 (vs 523 in FY24).

* For food delivery, adjusted EBITDA as a % of GOV margin was up 80bp QoQ at 1.6%. Contribution margin inched up slightly to 6.6% (6.4% in 1Q). Consol. adjusted EBITDA came in at negative INR3410m.

* Instamart reported a contribution margin of -1.9% (-3.2% in 1Q). Contribution margins are expanding and reaching breakeven due to an increase in AOV.

* Swiggy reported a net loss of INR6.2b, marking a 4.7% YoY decline.

* At the consolidated group level, the adjusted EBITDA margin is expected to achieve breakeven by 3QFY26 (Oct-Dec’25).

Key highlights from the management commentary

* Food delivery: Swiggy’s flagship product, Bolt, has emerged as a game-changer in the food delivery business. Within just 40 days of its launch, Bolt’s volumes accounted for 5% of the total food delivery volumes. The company is focusing on expanding its presence within existing cities, particularly those experiencing an increase in migrant populations (e.g. NCR, Bangalore). Unlocking new use cases: The company caters daily meals to corporate employees. Despite reduced same-store sales reported by QSR companies, Swiggy sees no impact on its business due to the growing preference for online food delivery over retail.

* Instamart: The company added 52 new stores during the quarter, bringing the total to 609 across 54 cities (doubling from FY24's 27 cities). It targets to double the dark stores capacity by Mar’25 (vs 523 in Mar’24, with the average store size increasing 30-35%. The company believes that the target of 75 cities is optimum for growth. The company is focusing on TAM and differentiating itself in the QC business through a diverse product assortment.

* The company expects to leverage the supply chain and distribution business for Instamart sellers, which will help increase take rates for the Q-commerce business.

* The adjusted EBITDA margin is expected to achieve breakeven at the group level by 3QFY26 (Oct-Dec’25).

Valuation and view

* We expect food delivery orders to grow at 12.5% annually with an AOV growth of 1.4%, leading to a GOV growth of 14.1% over FY24-37 (20.8% GOV CAGR over FY24-29). Q-commerce is expected to grow faster with orders increasing at 23.6% annually, AOV growth at 3.2%, and GOV growth at 27.6% (59% GOV CAGR over FY24-29). Swiggy is expected to report PAT margin of -16.1%/-3.9%/1.8% in FY25/FY26/FY27. Our adjusted EBITDA remains unchanged; however, PAT has been impacted by increased ESOP expenses. Our DCF-based valuation of INR475 suggests a 3% downside from the current price. We reiterate our Neutral rating on the stock

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