Quick Commerce Scale And Operating Leverage Will Transform This Platform Over The Long Term

Catalysts

About Swiggy

Swiggy operates a leading food delivery and quick commerce platform in India, offering on-demand access to restaurants, groceries and general merchandise.

What are the underlying business or industry changes driving this perspective?

• Rapid scale up of quick commerce with triple digit GOV growth, better dark store utilization and limited new store additions is creating strong operating leverage, which should lift contribution margins toward breakeven and progressively expand EBITDA.
• Rising customer adoption of non grocery categories and Swiggy's positioning as an everything store are structurally increasing average order values and ad funded brand participation, supporting sustained revenue growth and improving unit economics.
• Improving take rates and monetization through higher adjusted revenue per order, growing ad revenue as a share of GOV and better mix in higher margin categories are expected to push both net margins and earnings higher over time.
• Food delivery's steady, cash generative growth alongside disciplined customer incentives and subscription economics provides internal funding for experimentation and expansion in quick commerce, reducing dilution risk and enhancing long term earnings compounding.
• Network design focused on larger, high capacity dark stores in core cities, combined with rising order throughput per store and maturing customer cohorts, is intended to allow Swiggy to outgrow peers without proportional capex, driving higher returns on capital and stronger free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Swiggy's revenue will grow by 28.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -22.0% today to 3.2% in 3 years time.
• Analysts expect earnings to reach ₹13.0 billion (and earnings per share of ₹4.95) by about December 2028, up from ₹-41.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹26.5 billion in earnings, and the most bearish expecting ₹-10.1 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 175.3x on those 2028 earnings, up from -24.9x today. This future PE is greater than the current PE for the IN Hospitality industry at 31.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.98%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Escalating competitive intensity in both food delivery and quick commerce, including well funded incumbents adding hundreds of dark stores and new entrants experimenting with aggressive pricing and lower subscription fees, could force Swiggy into sustained higher discounts and marketing outlays, weighing on revenue growth quality and compressing net margins and earnings.
• The strategy to rely on larger, high capacity dark stores and slow incremental additions assumes continued rapid throughput growth and efficient utilization, but if order density or cohort frequency matures more slowly than expected, fixed overheads could remain elevated as a share of GOV, delaying operating leverage and limiting improvement in EBITDA and overall earnings.
• The rapid mix shift toward non grocery categories, electronics and pharmacy increases average order values but also brings lower take rates in the near term and structurally higher exposure to discretionary demand cycles, which may create volatility in monetization metrics and pressure adjusted revenue per order, net margins and earnings if consumer spending weakens or brand support moderates.
• Management’s plan to use additional QIP capital mainly as growth and innovation capital in a sector attracting heavy external funding risks prioritizing scale over discipline, and if experiments and new initiatives fail to generate adequate returns, shareholder dilution and elevated cash burn could undermine the pace of improvement in net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹491.48 for Swiggy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹740.0, and the most bearish reporting a price target of just ₹290.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹402.4 billion, earnings will come to ₹13.0 billion, and it would be trading on a PE ratio of 175.3x, assuming you use a discount rate of 15.0%.
  
• Given the current share price of ₹416.5, the analyst price target of ₹491.48 is 15.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.