Swiggy shares headed for near term volatility; Ambit initiates with 'sell' rating

Brokerage firm Ambit has initiated coverage on recently listed foodtech player Swiggy with a 'sell' rating as it believes that the company has a tough act to follow. It believes that the company has lost its competitive position in the key areas of operation and also the lag in the profitability in weighing on the stock. A few analysts expect some volatility in the stock in coming sessions.

Swiggy was a first-mover but is now a challenger at second in food delivery (FD) and third in quick commerce (QC). Profitability lags Zomato by 6-12 quarters. FD market share could stabilize at 42 per cent, with adjusted Ebitda  improving to 5 per cent of average order value (AOV) by FY40E, 2 times current level, said Ambit in its initiating coverage reports.

"We are less optimistic on QC as catchment is restricted to top 30-50 cities, advertising-led take rate expansion hopes are exaggerated and risks of prolonged competitive intensity are under-appreciated. Instamart will need investments to close the gap with Zomato on scale, assortment, customer acquisition, advertising and dark-store efficiency," it said.

Shares of Swiggy rose more than 2 per cent to Rs 328 on Monday, with its total market capitalization rising to Rs 75,000 crore mark. The stock had settled at Rs 321.35 on Friday. However, it has crashed nearly 48 per cent from its all time high at Rs 617, hit in December 2024. It tested its all time low at Rs 305.80 earlier this month.

This delays QC adjusted Ebitda breakeven to FY29E with cumulative loss of Rs 7,800 crore over FY24-28E, Ambit said. "Assuming ex-Instamart valuation of Rs 258 per share, CMP builds 26 per cent Instamart GOV CAGR, average take rate of 18.5 per cent and exit adjusted Ebitda of 4.7 per cent over FY24-40E, aggressive in our view," it added with a target price of Rs 310 on Swiggy.

To recall, the food-delivery to essential provider Swiggy launched its Rs 11,327.43 crore IPO in November 2024 by selling its shares for Rs 390 apiece in a lot size of 38 equity shares. The stock is currently trading nearly 16 per cent below its IPO price. The issue had received a muted response from the investors.

Besides this, some analysts also believe that Swiggy stock is likely to be volatile in the near term on account of market speculation around possible exits by some pre-IPO shareholders whose lock-in is set to expire on May 12, 2025.

"While we cannot accurately predict when these shareholders will exit, or whether they will even exit, it is pertinent to note that several of them are already sitting on significant unrealised gains. While a few had partly liquidated their positions during the IPO, we believe at least some investors will be eager to liquidate their holding despite that the stock is trading below its IPO price, said JM FInancial.

A sizable proportion of Swiggy’s shares can get traded in the near term. Even if one were to assume that only 15 per cent of the company's stake will be available for trade immediately post expiry, the total outflows could be Rs 12,000 crore, broadly equal to the total IPO size of Rs 11,300 crore, it said.

Long-term investors can use these liquidity events to build a sizable position in Swiggy as the market seems to accord value to only its food delivery business, whereas Instamart and other businesses are not getting any meaningful value, added JM Financial. It has a 'buy' rating on Swiggy with a target price of Rs 500.