Swiggy may recover quick commerce share despite widening losses: Morgan Stanley
Morgan Stanley
believes online food and grocery delivery company
Swiggy
's
quick commerce
business has a bright future.
This is despite the fact that while quick commerce has helped drive
Swiggy
's revenue growth, the company's expenditure on the vertical continues to drag its bottom line down.
Instamart
, Swiggy's quick delivery business, saw its gross order value (GOV) rise 101% year-on-year to Rs 4,670 crore. However, the adjusted Ebitda loss also increased to Rs 840 crore during the same period.
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Nevertheless, Morgan Stanley said in a recent note that Swiggy is well-equipped to weather the rising competition in the quick commerce segment with enough balance sheet strength to continue investing in the vertical.
Initiating coverage on Swiggy shares, Morgan Stanley analysts Gaurav Rateria, Sulabh Govila and Sakshi Rana stated in the June 2 note that medium-term concerns about competition in quick commerce will persist.
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Multiple new players, including major
ecommerce
companies, are now entering the industry. Even so, Swiggy will be able to protect its relative market share, the analysts noted.
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Morgan Stanley has revised its estimates for quick commerce's total addressable market—representing the entire potential demand—upwards to $57 billion by 2030, from $42 billion earlier. The brokerage expects 150 Indian cities to be conducive to the service, compared to the top 30 cities now. This implies multifold growth in the $8 billion market seen at the end of March 2025.
Existing companies with investments in infrastructure will benefit more from the quick commerce upsurge, the Morgan Stanley note read, and Swiggy has invested heavily in the space over the past 12 months. The company met its target of 1,000 dark stores, adding 316 of these micro-warehouses in the March quarter, and is looking to expand the network.
"We believe that store additions will be a derivative of growth... we have made a choice of network where we have these megapods, which are two-and-a-half times larger than dark stores and these can do 5,000-6,000 orders per day compared to 2,000-3,000 orders a day (done by smaller dark stores)," Swiggy's chief financial officer
Rahul Bothra
had told ET after the March quarter results in May.
Swiggy's current balance sheet strength and profit in food delivery will allow it to continue quick commerce investments and focus on at least maintaining market share, Morgan Stanley said. Total cumulative investment, in the form of operating losses or cash burn, in its quick commerce vertical is expected to be over $1.2 billion over the next two to three years before the company reaches break-even at the adjusted Ebitda level, the brokerage house said.
Swiggy shares rose as much as 9.5% during trade today to Rs 365 apiece. The counter closed 8.73% higher at Rs 362.50 per share, against a 0.32% rise in the Sensex to 80,998.25.
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