Interestingly, Swiggy holds a 12% stake in Rapido, purchased for ₹950 crore in April 2022. That holding has since swelled to ₹2,500 crore. Citing a conflict of interest, Swiggy is now preparing to offload its entire stake, strengthening its coffers in the process.
Investors have welcomed the move. Swiggy’s stock has gained nearly 3% since Wednesday, extending a 30% rally over the past three months. Still, it trades 8% below its listing price. For comparison, Eternal (Zomato) is up 11% over the same period.
But is a Rapido stake sale enough to turn things around?
Growth, but at a cost
Swiggy started with food delivery, but has since branched out into quick commerce via Instamart, and into B2B supply chain and distribution, which now accounts for more than 40% of revenue.
The company’s topline has seen an impressive growth of more than 50% year-on-year to R 5,308 crore in Q1FY26. In fact, this growth has come in consistently paced at 10-13% every quarter.
But there’s a catch, and a big one at that. The growth has come on the back of higher spending, rather than organic traction. As a result, Swiggy’s Ebitda margin has worsened from -10% in Q1FY25 to -15% in Q1FY26.
The Instamart drain on Swiggy’s profits
In the competitive quick-commerce space, both Instamart and Eternal’s Blinkit have been ramping up spends to build moats before new players catch up.
But their results have diverged. Blinkit posted a 155% year-on-year topline jump to ₹2,400 crore in Q1FY26. Instamart, despite a smaller base, reported slower growth at 113%.
Instamart operates at a smaller scale, with 1,062 stores as of June, compared tp Blinkit’s more than 1,500. But revenues are disproportionately lower at ₹859 crore.
Even on profitability, Blinkit reported an Ebitda margin of -6.75%. Instamart, meanwhile, appears clearly behind the curve. Rapid expansion is burning cash, while the stores are not mature enough yet to justify the higher expenses.
Result? Instamart reported ₹896 crore in Ebitda loss to clock revenues of ₹859 crore.
Swiggy catching up with Zomato?
Swiggy’s mainstay B2C business of food-delivery appears to have plateaued.
After several quarters of flat revenues, Q1FY26 saw a growth uptick in the segment. Revenue picked up sequentially from ₹1,867 crore to ₹2,080 crore. But margins shrank: Ebitda fell from 2.9% of gross order value (GOV) to 2.5% during the period.
To be sure, Eternal has faced similar headwinds in the food-delivery space. While growth has mellowed down compared to the initial years of operation, sequential margin-compression is attributable to seasonal weakness in Q1 due to reverse-migration and monsoons. This is to say that the issue is industry-wide, rather than being a company-specific problem.
In fact, Swiggy surpassed Zomato on growth with 20% year-on-year rise in revenues against Zomato’s 18% growth. Swiggy’s food-delivery revenue came in at ₹2,080 crore in Q1FY26, closing in on Zomato’s ₹2,657 crore food-delivery topline.
But profitability paints a different picture. Zomato posted an Ebitda margin of 4.2% of GOV in Q1FY26, almost double Swiggy’s.
Of course, in other businesses, Swiggy is profitable while Eternal is still piling on losses.
Swiggy’s out-of-home consumption segment reported a 0.5% Ebitda margin, while Eternal’s going-out segment (District) reported a loss of 2.3%. However, these segments’ contribution to the overall business is limited and won’t move the needle in Swiggy’s favour.
Silver linings and caveats
In food delivery, Swiggy has been innovating to improve execution and deliver new customer propositions. Whether it is with quick-prep snacky food delivery available at record times through Bolt or Snacc’s micro-kitchen model that solves for affordability and speed, Swiggy has ramped up its efforts to improve customer retention and consumption frequency, especially among price-sensitive new-age consumers.
Pockethero, Crazy Deals, and the latest 99-Store are also initiatives in a similar vein.
That said, some of these innovations are still in their exploratory stages, and management is determining the economic feasibility of the services. Matters may get further complicated with Rapido’s entry into the space.
Next, the deepest drain on the company’s profitability, quick commerce. Instamart has been expanding with new larger stores, and a wider inventory assortment. As a result, non-grocery categories now contribute 18.5% to GOV, a sharp improvement from 6.6% a year back. This is expected to resolve currently unmet needs, thereby capturing larger shares of the consumers’ wallet. The management has reaffirmed its guidance to achieve breakeven within the next year. While this offers hope, the goalpost may be moved ahead if competition disrupts plans.
Finally, Swiggy’s out-of-home business expanded its profitability from 0.3% Ebitda margin in Q4FY25 to 0.5% in Q1FY26. But with only 2% contribution to the company’s revenue, the segment is not material enough to improve Swiggy’s overall profitability. Moreover, it will have to be seen whether the traction continues without the GIRF (Great Indian Restaurant Festival) push.
Summing it up
Swiggy’s losses have widened over the quarters.
In fact, since the company raised funds through its public debut a couple of quarters back, it has been burning cash faster. Compared to an average of around ₹300 crore cash-burn before the IPO, the company has burnt more than ₹1,000 crore every quarter since then.
Of course, the higher spending is directed towards expansion, hoping to secure a head start over competitors. But at this rate, the ₹2,500 crore fund infusion from the stake sale in Rapido will last barely half a year. Along with its cash balance of a little over ₹5,000 crore as of June, this leaves the company with a runway of less than two years.
Moreover, unlike Eternal, which has been logging profits on the back of treasury income and a large cash balance, Swiggy’s treasury income has been negligible against its heavy cash burn.
Even more worrying is the management’s intent. While the management has cited a shifting focus towards profitability as one of the reasons behind offloading their stake in Rapido, the rest of their comments send out mixed signals.
They have indicated an intent to increase spending on marketing and customer acquisition amid intensifying competition. With deep-pocketed players like Amazon and Flipkart entering the quick-commerce space, Swiggy’s apparent strategy of outspending the competition is not sustainable.
A push from valuation and liquidity can support the stock’s price over the near term. The stock is expected to enter the MSCI India Index, resulting in inflows worth almost $300 million. But long-term capital appreciation is contingent on a business turnaround.
For more such analysis, read Profit Pulse.
The company needs to emerge from its cash-burn-driven growth cycle sooner rather than later. Brokerages peg the stock’s target price at ₹450 apiece, implying a less than 15% upside from current levels.
Ananya Roy is the founder ofCredibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
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