Buy Swiggy; target of Rs 740: ICICI Securities

BUY

ICICI Securities's research report on Swiggy

In FD, we estimate Swiggy to have gained market share of ~30bps on GOV basis and ~50bps on MTU basis. This is broadly in line with our survey findings (link). Adj. EBITDA margin in FD improved ~90bps QoQ despite marginal decline in take rate driven by cost optimisation. Pre-contribution expenses in FD were down 1.2% QoQ, which we believe implies 3-4% QoQ improvement in unit economics. In QC, GOV growth at ~88% YoY was lower than Blinkit primarily due to lower store additions (Instamart (IM) added 96 stores in Q3 vs BK adding 216 stores). Contribution margin declined 270bps QoQ in QC for IM vs 80bps decline for BK. While this seems starkly worse, pre-contribution expenses /sq ft in IM have increased 8.6% QoQ which is understandable given it has increased city count from 54 to 84. Maintain BUY.

Outlook

We maintain BUY on Swiggy with three-stage DCF-based target price of INR 740. Risks: Slowdown in discretionary spending and negative externalities disrupting business operations.

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