Swiggy Faces First 'Sell' Rating Post-IPO as Ambit Capital Warns of Rising Competition

Swiggy’s stock has seen a slight uptick, rising by 1.54% to ₹348.65 during intraday trading. However, this figure has since dipped from its peak earlier in the day. The recent buzz in the market comes as Swiggy receives its first ‘sell’ rating since its debut in November 2024, signaling challenges ahead for the popular food delivery and quick commerce platform.

Swiggy Faces New Challenges

Analysts at Ambit Capital have voiced concerns, indicating that Swiggy has lost its early advantages in the competitive landscape of food delivery and quick commerce. The company has slipped to the second and third positions, respectively, in these sectors. Ambit Capital, which began its coverage of Swiggy this week, noted that while the company was once a pioneering force, it now trails behind its competitors.

Food Delivery Market Share: Expected to stabilize at around 42%.
Instamart Concerns: Limited growth potential in a capped market involving 30-50 cities.

Ambit also highlighted the need for substantial investment in Swiggy’s Instamart division to keep pace with rivals like Blinkit and Zomato. The brokerage pointed out that Swiggy must enhance its scale, product assortment, and customer acquisition to catch up.

Competitive Landscape Intensifies

In contrast to Ambit’s cautious stance, JPMorgan has a more optimistic outlook, suggesting that Swiggy is narrowing the gap with Zepto in terms of store count. Despite this, Swiggy has been losing market share to Zomato, which currently outperforms Swiggy in user engagement and order volumes.

Key metrics to note:

Market Share: Swiggy holds 43%.
Gross Order Value: Approximately 25% lower than Zomato.
Revenue: Roughly 23% less than Zomato.

While Swiggy’s average order value matches that of Zomato, its broader geographical reach contributes to higher delivery costs. Ambit predicts a narrowing of the profitability gap as Swiggy optimizes its operations and reduces discounts. However, Zomato’s more concentrated presence continues to give it an edge.

Instamart’s Struggles

Swiggy’s Instamart has fallen from its position as the leading player in quick commerce, now lagging behind Blinkit and Zepto. The competition is heating up, with Swiggy caught between Zomato’s efficiency and Zepto’s aggressive strategies. Additionally, major players like Flipkart and Amazon are set to enter the market by year’s end, adding to the competitive pressure.

Key performance indicators for Instamart include:

Market Share: Approximately 22%.
Gross Merchandise Value: 50% smaller than Zomato.
Revenue: 57% smaller compared to Zomato.

Ambit Capital notes that Instamart’s slower growth can be attributed to its initial focus on a 30-minute delivery model, lagging behind competitors who offer faster 10-15 minute delivery options. This, combined with a limited product range and delayed advertising efforts, has hindered its expansion.

Future Outlook for Swiggy

Looking ahead, Ambit now forecasts that Instamart may only reach break-even status by the fiscal year ending March 2029, which is two years later than the company’s projections. Cumulative losses for the quick commerce segment are expected to reach ₹7,800 crore by March 2028. The brokerage has indicated that current market expectations may be overly ambitious.

As of the latest updates, Swiggy’s stock remains volatile, showing a 1.54% increase, though it has retreated from its earlier intraday highs. Investors and market watchers will be keen to see how Swiggy adapts to these challenges and whether it can regain its footing in the increasingly competitive landscape.