Swiggy stock falls 2%, snaps five-day rally as JM Financial sees no 'meaningful returns' until larger fund raise

Food and grocery delivery platform Swiggy’s shares dropped by 2% on September 22, ending a five-day winning streak during which the stock rose by 9%. JM Financial Institutional Securities downgraded the stock from ‘hold’ to ‘reduce,’ though it increased its target price by nearly 5% to Rs 440.

The brokerage highlighted concerns about Swiggy’s balance sheet, suggesting that corrective actions are necessary. While media reports indicate the company may sell a 12% stake in Rapido to strengthen its finances, JM Financial believes Swiggy will need to raise more than $500 million to support its long-term ambitions in the quick commerce sector. This is because even if the entire Rapido stake is sold at the higher end of the valuation range ($2.5 billion to $2.7 billion), it would only generate about $320 million before taxes, according to the reports. The brokerage expects the Rapido deal to close between October and March and has factored the proceeds into its projections.

Swiggy has been losing market share to Blinkit, which has grown by over 130%, despite Swiggy Instamart’s own gross order value doubling in recent quarters, JM Financial noted. Blinkit plans to double its number of stores in the medium term, while Instamart’s slower expansion could cause it to lag behind the more aggressive competitor.

JM Financial forecasts that Swiggy’s net cash balance, excluding the Rapido stake sale proceeds, will decline by Rs 1,000 crore sequentially to Rs 4,350 crore by September. This implies that the company’s net cash outflow over the last 15 months would surpass the Rs 4,400 crore it raised during its initial public offering in November 2024. The brokerage expects high cash burn to continue until at least late 2026-27. This outlook is due to Instamart’s ongoing losses in adjusted earnings before interest, tax, depreciation, and amortization, which are unlikely to improve quickly, limited addition of new dark stores (40-50 per quarter compared to a peak of 316 stores), and sustained competitive pressures, based on management’s latest guidance.