Brokerage firm Ambit has initiated coverage on the recently listed food-tech company Swiggy with a ‘sell’ rating, citing concerns over the company’s competitive position and profitability challenges. Ambit believes that Swiggy is struggling to maintain its earlier dominance and faces a tough road ahead. Despite being a first-mover in the food delivery market, Swiggy now finds itself as a challenger, ranking second in food delivery (FD) and third in quick commerce (QC). Its profitability lags behind Zomato by 6 to 12 quarters, adding to the pressure on its stock.
Ambit forecasts that Swiggy’s FD market share may stabilize at around 42%, with adjusted EBITDA improving to 5% of the average order value (AOV) by FY40E, which is twice its current level. However, the brokerage firm remains less optimistic about Swiggy’s quick commerce segment. Ambit points out that the QC market is restricted to the top 30-50 cities, and the company’s reliance on advertising-led take rate expansion seems exaggerated. Furthermore, the risks of prolonged competitive intensity in the space are being underappreciated. Instamart, Swiggy’s QC arm, will require significant investments to close the gap with Zomato in terms of scale, assortment, customer acquisition, advertising, and dark-store efficiency.
Swiggy’s stock saw a modest rise of more than 2% to Rs 328 on Monday, pushing its total market capitalization to Rs 75,000 crore. However, this is still nearly 48% below its all-time high of Rs 617, reached in December 2024. The stock has also tested its all-time low of Rs 305.80 earlier this month. According to Ambit’s report, this delays the adjusted EBITDA breakeven for Instamart to FY29E, with cumulative losses estimated at Rs 7,800 crore over FY24-28E. With a target price of Rs 310, Ambit’s analysis suggests that Swiggy’s current market conditions could reflect an overly aggressive growth projection for Instamart.
To recall, Swiggy launched its IPO in November 2024, raising Rs 11,327.43 crore by offering shares at Rs 390 apiece. However, the issue received a muted response, and the stock is currently trading 16% below its IPO price.
Analysts believe that Swiggy’s stock could experience significant volatility in the near term, especially with the expiration of the lock-in period for pre-IPO shareholders on May 12, 2025. While it is difficult to predict exactly when these shareholders will exit or whether they will even choose to liquidate their holdings, some analysts speculate that many are sitting on substantial unrealized gains.
Even assuming only 15% of Swiggy’s stake becomes available for trade, the resulting outflows could be as high as Rs 12,000 crore, roughly equal to the IPO size.
However, long-term investors are advised to use these liquidity events to build positions in Swiggy, as analysts note that the market is currently valuing only its food delivery business, with little attention being paid to Instamart and other ventures. JM Financial, which has a ‘buy’ rating on Swiggy, has set a target price of Rs 500 for the stock.
