Swiggy upgraded to ‘Buy’ by HDFC Securities despite widening losses; target trimmed slightly to ₹400

Domestic brokerage firm HDFC Securities has upgraded Swiggy to a ‘Buy’ from its earlier ‘Reduce’ rating, even as the food delivery and quick commerce platform reported a steep increase in losses for the March 2025 quarter. While the brokerage trimmed its target price slightly to ₹400 from ₹410 earlier, the revised estimate still implies an upside potential of nearly 28 percent from Friday’s closing price.

Swiggy reported a consolidated loss of ₹1,081.18 crore in Q4FY25, nearly doubling from ₹554.77 crore reported in the same quarter last year. Despite the losses, revenue from operations rose sharply by 44.8 percent year-on-year to ₹4,410 crore, compared to ₹3,045.55 crore in Q4FY24.

Brokerage sees long-term value despite challenges

HDFC Securities believes Swiggy’s quick commerce losses may gradually unwind as the company optimises its operations, improves take rates, and boosts average order values. Management expects contribution margin breakeven in quick commerce (QC) within the next three to five quarters.

The brokerage acknowledged that while Swiggy’s food delivery (FD) segment remains stable, its execution gap in quick commerce compared to competitor Blinkit has widened. Still, it pointed out that the stock has corrected nearly 50 percent over the past five months, creating a more attractive valuation opportunity.

“At the current market price, we are effectively valuing the Instamart business at only ₹7,500 crore (less than USD 1 billion), offering a compelling value with a two-year cash burn runway,” HDFC Securities said.

Despite maintaining its FY27 Pre-Ind AS EBITDA loss estimates at ₹1,800 crore, the brokerage upgraded Swiggy to a ‘Buy’ with a sum-of-the-parts-based target price of ₹400 per share, implying a 3.5x FY27 EV/sales multiple.

Quick commerce outperforms, but at a cost

According to HDFC Securities, Swiggy’s food delivery business delivered results that were largely in line with estimates, with monthly transacting users (MTUs) at 15.1 million, gross revenue rising 19.7 percent to ₹1,867 crore, and adjusted EBITDA at ₹212 crore. However, the brokerage highlighted that the quick commerce  segment outpaced expectations in terms of user additions, but continued to face heavy losses.

Customer acquisition in quick commerce saw a strong uptick, with MTUs increasing by 2.8 million compared to HDFC Securities' estimate of 1.1 million. Instamart’s Gross Order Value (GOV) grew 19.5 percent quarter-on-quarter and 101 percent year-on-year to ₹4,670 crore, driven by 40 percent QoQ MTU growth to 9.8 million. However, average order value (AOV) declined 1.3 percent to ₹527.

Despite the higher customer base, QC’s burn remained elevated at ₹840 crore in Q4FY25, up from ₹580 crore in the previous quarter. The sequential rise in losses was attributed to increased customer incentives, aggressive expansion of dark stores—316 new stores were added in Q4 alone—and resulting underutilised network capacity.

Adjusted revenue in QC rose 21.7 percent QoQ, supported by improved take rates, which increased by 27 basis points to 15.7 percent. However, contribution margin contracted to -5.6 percent and adjusted EBITDAM dropped to -18 percent of GOV due to intensified marketing spends.

Stock Price Trend

Despite a sharp rise in quarterly losses, Swiggy's stock rose 3 percent in intra-day trade on Monday, May 12, to touch ₹325. The scrip has gained 1.5 percent so far in May, reversing its downward trend after four consecutive months of losses. It had declined 4 percent in April, 1.3 percent in March, 19.5 percent in February, and 2 percent in January.

Overall, Swiggy's Q4FY25 results reflect the strain of scaling up in the hyper-competitive quick commerce space, but HDFC Securities sees potential in the company's long-term growth strategy. With strong top-line growth, improving take rates, and a sharp correction in valuation, the brokerage believes the downside is limited and that the stock is positioned for a rebound as operational efficiencies kick in over the coming quarters.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.