JM Financial Downgrades Swiggy to Sell on Margin and Cannibalisation Concerns
JM Financial has downgraded Swiggy to a sell rating with a 15 percent downside forecast, warning that the quick commerce operator is sacrificing near-term profitability for growth amid rising customer overlap.
JM Financial has downgraded Swiggy to a "sell" rating, setting a target price of 250 rupees per share. The brokerage forecasts more than 15 percent downside from current market levels, offering a contrarian view shortly after peers issued bullish calls following the company's first-quarter fiscal 2027 results.
The downgrade centers on Swiggy’s strategic pivot away from margin improvement. Despite Instamart’s contribution margin reaching a marginal 0.2 percent in the first quarter, JM Financial expects this metric to slip into negative territory, between 0 and minus 100 basis points, over the next two quarters.
Management has reportedly shifted its Instamart focus back to accelerating growth after nearly achieving contribution-level break-even. The company now targets at least double-digit sequential net order value growth in the second quarter while accepting a 0 to minus 1 percent contribution margin. Consequently, adjusted earnings before interest, taxes, depreciation and amortization losses are projected to remain between 750 crore and 800 crore rupees in the near term.
Growth metrics in the recent quarter also disappointed, marking the first such instance in recent periods despite an 18 to 20 percent medium-term guidance. More critically, management disclosed that nearly one-third of users on Toing, a newer venture, overlap with Swiggy’s core food-delivery base. This raises immediate questions about order cannibalisation within the company's own ecosystem.
Swiggy’s Platform Innovations segment, which houses Toing, Crew and other experimental projects, is burning cash at an accelerating rate. Segment revenue grew to 51 crore rupees in the first quarter from 11 crore rupees previously, but the adjusted EBITDA loss widened sharply to 130 crore rupees from 58 crore rupees in the fourth quarter of fiscal 2026.
Management attributed these widening losses to residual costs from closing its Snacc business and increased marketing spend to scale Toing. While Swiggy maintains that fresh capital will only be deployed after proving business viability, JM Financial warns that the sharp rise in losses and customer overlap threaten long-term value creation.
The brokerage’s caution contrasts with Swiggy’s headline financial improvements for the April to June quarter. The company reported a consolidated net loss of 791 crore rupees, a 34 percent year-on-year reduction, while operational revenue climbed 37 percent to 6,812 crore rupees.
Instamart specifically saw its losses contract to 651 crore rupees from 797 crore rupees a year ago, even as revenue surged 53 percent to 1,232 crore rupees. Gross order value for the quick commerce arm rose 40 percent to 7,907 crore rupees, underpinning the complex trade-off between scale and sustainable profitability that investors must now weigh.
