Swiggy shares fall even as brokerages positive on Rapido stake sale, Instamart restructuring

Swiggy Ltd

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Food delivery and quick commerce player Swiggy Ltd saw its shares fall nearly one percent in early trade on Wednesday, September 24, following the sale of its 12 percent stake in Rapido and restructuring of quick commerce arm Instamart.

At 9.55 a.m., shares of Swiggy were quoting Rs 444.2, lower by 1.1 percent on the NSE.

Food delivery and quick commerce player Swiggy Ltd saw its shares fall nearly one percent in early trade on Wednesday, September 24, following the sale of its 12 percent stake in Rapido and restructuring of quick commerce arm Instamart.

Swiggy, which had picked up around a 12 percent stake in transport aggregator Rapido for about Rs 1,000 crore in April 2022, has now sold that holding to Prosus and Westbridge for roughly Rs 2,400 crore. "This monetisation raises the cash balances of Swiggy and gives it enough financial resources to weather the current burn phase of its Quick commerce (Instamart) business," said Instamart.

Further, Swiggy, pending shareholder approval, has cleared the sale and transfer of its Quick Commerce business, Instamart, to Swiggy Instamart Private Limited, an indirect step-down wholly owned subsidiary in India. The transfer will be executed as a going concern through a slump sale.

Japan-based Nomura said, "We believe today’s restructuring is a step in the direction of enabling Instamart to own inventory in its Quick commerce business once Swiggy becomes an Indian Owned and Controlled Company (IOCC) when its domestic shareholding crosses 51 percent."

The brokerage noted that Eternal, formerly Zomato, had also announced a change of business model for its Quick commerce subsidiary (Blinkit) when it became an IOCC. Switching to an inventory-led model can help improve the contribution margin of Swiggy’s Instamart business as Eternal expects ~100 basis points improvement from the same.

Nomura decided to maintain its buy rating, with a target price of Rs 550 per share. "We believe that, at the current price, the market is ascribing only ~0.3x EV/GOV to its QC business vs ~0.9x for Eternal. In our view, disciplined execution and improving visibility on breakeven will be a key catalyst for the stock to do well from here."

International brokerage Morgan Stanley has an overweight call on Swiggy with a target price of Rs 450 per share. The company’s board approving a Rs 2,400 crore stake sale in Rapido to strengthen its balance sheet is in line with management commentary, noted the broking house.

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