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Competition and expansion plans to drag QC profits

Slight market share gain in food delivery encouraging; reiterate Neutral

* Swiggy delivered a revenue of INR39.9b in 3QFY25 (up 11% QoQ) vs. our estimate of INR38.9b. The food delivery (FD) business’s GOV grew 19.2% YoY, whereas the contribution margin was 7.4%, recording 80bp QoQ expansion. FD’s adjusted EBITDA as a % of GOV margin rose 90bp QoQ to 2.5%.

* Instamart’s GOV was INR39.0b (+88.1% YoY), which missed our estimate. The contribution margin dipped 270bp QoQ to -4.6%. Adjusted EBITDA as a % of GOV was -14.8% (-10.6% in 2Q), missing our estimate of -10.0%.

* Overall, Swiggy reported a net loss of INR8b, marking a 39% YoY increase.

* For 4QFY25, we expect revenue/adj. EBITDA loss to increase 7.0%/14.5% QoQ. Our DCF-based valuation of INR460 (INR520 earlier) suggests a 10% potential upside. We reiterate our Neutral rating on the stock.

Market share gain in FD encouraging

* Market share gain in food delivery is encouraging; however, challenging macros continue to weigh on the FD business, and management believes growth could slow down for the industry as a whole despite the recent consumption push.

* We do not foresee a meaningful acceleration in the FD business in the near term at the GOV level, as we believe Bolt and 10-minute food delivery could lead to lower Average order value (AOV) growth too.

* That said, we believe Swiggy's 10-minute food delivery rollout has been quite impressive, and it reignites competition in the FD space.

* The stable duopoly is largely priced into the stock prices of both peers, and quick commerce (QC) will continue to determine the winners

Instamart: GOV growth lags, margin expectations rebased

* QC overall was a miss on both GOV and margins.

* GOV growth of 15.5% QoQ was below our estimate of +23.3%; further, most of this growth came from higher AOV, and order growth was much slower at 7%.

* While a part of this may be attributed to dark stores being opened near the fag end of the quarter, leading to lower ramp-up time, we await meaningful acceleration in orders.

* We have argued in our IC (“Quick” commerce, delayed gratification, page 27) that AOV and take rates remain the biggest levers to contribution margin improvement for Instamart. AOVs in 1Q were 22% below Blinkit, and take rates were ~500bp lower. Better SKU optimization (non-grocery contribution – Exhibit 6) has certainly helped here. We are encouraged by the progress on AOVs since then; AOV for 3Q was up 10% vs. 1Q. Take rates, however, have remained flattish.

* Akin to its rival, Swiggy has guided for an aggressive dark store expansion plan, leading to steeper losses in its QC business.

* It has maintained its contribution margin guidance of breakeven by Dec '26; however, we believe CMs over the next four quarters could continue to be negative. Adjusted EBITDA margins could be lower for longer, as fixed costs for marketing continue to drag profitability

Valuation and view

* We believe FD remains a stable duopoly; however, increased competition and aggressive dark store expansion have rebased profitability expectations for the QC sector in the near term. Despite this, our implied EV/GMV FY27e multiple for QC is at 0.7x, which we do not consider to be overly demanding, especially after the recent correction (the stock is down 30% from its peak). An acceleration in AOV and take rates, and a possible stock correction after these results could prompt us to turn constructive on the stock.

* We expect food delivery orders to grow at 12.2% annually with an AOV growth of 1.4%, leading to a GOV growth of 13.8% over FY24-37 (20.0% GOV CAGR over FY24-29). QC is likely to grow faster, with orders increasing at 25.4% annually, AOV growth at 3.0%, and GOV growth at 29.2% (64% GOV CAGR over FY24-29).

* Swiggy is likely to report a PAT margin of -19.5%/-11.4%/-5.4% in FY25/FY26/ FY27. Our profitability estimates for FY25/FY26/FY27 have been hit by aggressive dark store expansion. Our DCF-based valuation of INR460 suggests a 10% potential upside from CMP. We reiterate our Neutral rating on the stock.

FD GOV in line; Instamart GOV misses estimates

* Swiggy reported 3QFY25 revenue of INR39.9b (+11.0%/31.0% QoQ /YoY) vs. our estimate of INR 38.9b.

* Food delivery GOV stood at INR74.3b (up 3.4%/19.2% QoQ/YoY) vs. our estimate of 4.3%/20.2% QoQ/YoY growth.

* Instamart GOV came in at INR39.0b (up 88.1% YoY) vs. our estimate of 23%/ 100% YoY growth. Dark store rollouts with 96 new active Dark stores in 3Q (nearly double of 2Q).

* For FD, adjusted EBITDA as a % of GOV margin was up 90bp QoQ at 2.5% vs. our estimate of 1.8% adjusted EBITDA margin.

* Instamart adjusted EBITDA as a % of GOV was -14.8% (-10.6% in Q2) vs. our estimate of -10.0%.

* Consol. EBITDA came in at negative INR7.2b.

* Instamart reported a contribution margin of -4.6% (-1.9% in 2Q) vs. our estimate of -2.2% as the company ramped up user activation and dark store expansion across geographies.

* Swiggy reported a net loss of INR8b (est. INR7.0b), an increase of 39% YoY.

Key highlights from the management commentary

* FD: AOVs are expanding. Delivery costs are becoming more efficient. Bolt continues to drive faster growth, with its share of total food delivery orders increasing to 9% within the quarter. Geographic expansion within existing cities remains a key focus, especially in metros with increasing peripheries (e.g., NCR, Bangalore). New use cases such as daily corporate meal subscriptions are being explored to boost demand. Future innovation is expected from Bolt, which will drive advancements in the restaurant ecosystem.

* Instamart: The company is focusing on store additions to drive category growth in the medium term. It is prioritizing wallet size and spending based on higher retention ratios. Structural P&L continues to improve, driven by higher AOV and an expanded take rate. Stores typically take six to nine months to break even. Shorter last-mile delivery distances (under 2 km) and fast preparation menus contribute to improved efficiency.

* Swiggy reaffirms its adjusted EBITDA breakeven target for 3QFY26 at the corporate level.

* Food Delivery segment EBITDA margin remains on track to reach 5% in the medium term, supported by operational efficiencies and increased order values.

Valuation and view

* We expect food delivery orders to grow at 12.2% annually with an AOV growth of 1.4%, leading to a GOV growth of 13.8% over FY24-37 (20.0% GOV CAGR over FY24-29). Q-commerce is expected to grow faster, with orders increasing at 25.4% annually, AOV growth at 3.0%, and GOV growth at 29.2% (64% GOV CAGR over FY24-29). Swiggy is likely to report a PAT margin of -19.5%/-11.4%/-5.4% in FY25/FY26/ FY27. Our profitability estimates for FY25/FY26/FY27 have been hit by aggressive dark store expansion. Our DCF-based valuation of INR460 suggests a 10% potential upside from CMP. We reiterate our Neutral rating on the stock.

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