A brokerage firm has upgraded Swiggy to 'Buy', highlighting the company’s shift from aggressive expansion to sustainable profit. With a ₹14,000 crore cash reserve, the food delivery firm plans to offset its Quick Commerce losses using core business profits by FY28.
A brokerage firm has revised its rating on Swiggy to 'Buy', citing the company’s successful transition from a growth-at-all-costs strategy to a more balanced approach focused on profitability. The update reflects confidence in the company's ability to manage its expanding Quick Commerce division while maintaining core operational stability.
Profitability and Strategy Shift
Swiggy has made significant adjustments to its business model over the past year. In the fourth quarter of FY25, the company faced a peak contribution margin loss of roughly 5.6 percent. By the first quarter of FY27, it successfully reached a break-even point in its contribution margins. This shift indicates that the company is effectively managing the costs associated with its delivery operations. Management is now leveraging this stability to drive long-term business health rather than chasing rapid growth through high cash burn.
Managing Quick Commerce Investments
To compete effectively with rivals like Blinkit, Swiggy is investing heavily in its Quick Commerce segment. The company expects contribution margins for this division to remain between zero and negative 1 percent in the near term, which may lead to higher EBITDA losses in the immediate future. Despite these expenses, the core Food Delivery business continues to act as a profit generator. In the first quarter of FY27, the food delivery unit reported a 3.1 percent EBITDA margin, supported by a 17.4 percent increase in Gross Order Value compared to the previous year.
Financial Cushion and Valuation
Swiggy’s balance sheet remains robust, with the company holding approximately ₹14,000 crore in cash as of the first quarter of FY27. Financial analysts suggest that the cash generated from the core food delivery operations, along with treasury income, should be sufficient to cover the operational losses in the Quick Commerce segment by FY28 or early FY29. The stock is currently trading at about 23 times its projected FY28 EBITDA. Analysts note that this valuation effectively prices the stock in a way that suggests investors are getting the Quick Commerce and Dine-out businesses at little extra cost. When compared to sector peer Zomato, Swiggy is trading at a discount of roughly 15 percent.
Risks and Monitorables
While the outlook has improved, investors should keep in mind the inherent risks of the Quick Commerce space. The sector is characterized by intense competition and a constant need for capital to maintain dark stores and fast delivery networks. The risk of higher cash burn if the company fails to capture or retain market share in Quick Commerce remains a key concern. Execution speed and the ability to maintain margins while scaling the delivery network will be critical. Moving forward, shareholders will likely monitor the company’s quarterly profit margins, the rate of cash burn in the Quick Commerce segment, and any updates regarding the timeline for achieving full operational coverage for its delivery business.