Swiggy’s Instamart Turns A Corner

The quick commerce industry in India got a reality check this week as Zepto’s IPO plans were put on hold. Amid this, Swiggy’s Q1 FY27 financials may come as something of a relief for those who were watching this space. Not entirely though. 

At a first glance, the results look encouraging. Swiggy reported a narrower consolidated adjusted EBITDA loss, its quick commerce arm Instamart hit contribution margin break-even for the first time. 

Despite this, Swiggy has been sending mixed signals to the market with respect to the guidance on profitability timeline and growth plans, which is likely to impact investor sentiments further, even as Zepto’s pause in IPO plans according to the market analysts may cushion Swiggy against further valuation erosion in near term.

“They’ve been giving guidance back and forth. While the earlier guidance from the company had stated focus on contribution profitability, which did happen this quarter. Now they are back on increasing the growth guidance and saying that profitability won’t come for the two quarters.,” Karan Taurani, executive vice president at Elara Capital, told Inc42.

Market observers we spoke to stated that if Swiggy pushed to tighten its unit economics to turn Adjusted EBITDA positive in next few quarters, the consumer tech firm may risk losing market share by as much as 20-30% especially in quick commerce market where the competition is heating up with ecommerce giants like Amazon and Flipkart scaling their discounts.

Meanwhile Swiggy’s food delivery business, which remains its biggest source of cash, reported slower growth during the quarter, while Instamart’s expansion also lost pace as Swiggy prioritised profitability over chasing volumes. 

The market was quick to react. Swiggy’s shares fell nearly 5% after the results as investors looked past the gains in margins and focused on slowing growth across its two biggest businesses. 

The mixed quarter also split brokerages. 

While firms such as Nomura and Bernstein said Swiggy is becoming financially stronger and has enough cash to keep investing in quick commerce, CLSA and Macquarie raised concerns over weaker growth across food delivery and Instamart.

Morgan Stanley and HSBC, meanwhile struck a more measured tone, acknowledging progress on profitability while saying Swiggy still has to prove it can grow without stepping up losses. 

As competition intensifies across both food delivery and quick commerce, the June quarter suggests Swiggy has entered a new phase, where investors are looking beyond decline in losses and asking whether growth can return. 

Food Delivery Business Loses Momentum

Like Zomato, Swiggy’s food delivery business has long enabled the startup’s expansion into newer businesses. That remains true even today. But the June quarter suggests the segment may no longer be growing at the pace investors have become accustomed to. 

Food delivery GOV rose 17.4% YoY to ₹9,490 Cr, while adjusted EBITDA increased to ₹292 Cr. However, adjusted EBITDA margin slipped to 3.1% of GOV from 3.3% in the previous quarter due to higher delivery partner costs during the monsoon season and annual salary revisions. 

Average monthly transacting users also slipped to 5% QoQ to 19.2 Mn. 

Management attributed part of the slowdown to LPG supply disruptions, which led to a spike in restaurant-led order cancellations during the early weeks of the quarter. It must be noted that, last quarter, Swiggy denied that LPG supply disruption had impacted the startup’s food delivery business. 

Sunny Agrawal of SBI CAPS Securities, however, said that challenges in the food delivery business will be cushioned through higher order frequency, improved monetisation and operating leverage.

It is interesting to note, that Zomato on the other hand scaled its food delivery business during the same time. In the most recent Q1 quarter, Zomato’s food delivery business continued its steady growth trajectory and raked in an operating profit of ₹621 Cr. Zomato’s revenue increased 13% QoQ and 37% YoY to ₹3,100 Cr.

Beyond temporary disruptions, Swiggy is also changing how it approaches the market. Swiggy said it is expanding its affordability offerings to attract customers who have so far stayed away from online food delivery because of pricing. Alongside the ₹99 Store, it has expanded Toing, its standalone app for affordable meals, to nearly 50 cities. As per the company two of every three users acquired through Toing are either new to Swiggy or inactive users returning to the platform.

The market however believes affordability alone may not be enough. 

CLSA downgraded Swiggy to Hold and cut its target price to ₹318, saying Swiggy’s food delivery business underperformed expectations. The brokerage noted that GOV growth lagged Zomato and that contribution margins took a hit because of higher delivery costs and the impact of Toing, which it said was not visible in Zomato’s numbers.  

Similarly, Morgan Stanley said the weaker than expected quick commerce performance and higher losses in platform innovations weighed down the consolidated business.  

Instamart Finds Its Footing, But Growth Questions Remain 

If food delivery disappointed, Instamart delivered the quarter’s biggest milestone. 

After five quarters of working towards the goal, Swiggy’s quick commerce business reached contribution margin break even in May and ended the June quarter with contribution margin at -0.2%, an improvement of 440 basis points from a year ago. 

Adjusted EBITDA losses narrowed to ₹778 Cr from ₹858 Cr in the previous quarter, while GOV rose 39.8% YoY to ₹ 7,907 Cr. It also expanded its darkstores network to 1,171 dark stores across 131 cities. 

Instamart’s improving profitability could be down to a series of tough calls taken over the past few quarters as the company told investors and analysts after the earnings. 

Swiggy said it removed nearly four million unprofitable users, improved advertising monetisation, increased platform fees and pushed a better product mix. As a result, more than 45% of its dark stores are now contributing margin positive, up from around 30% in the previous quarter. 

But the quarter also exposed a trade off that is apparent to anyone who has followed ecommerce, digital commerce or any consumer services model in India. 

While profitability improved, Instamart’s growth slowed and its average order value (AOV) declined sequentially. That is significant because Swiggy has repeatedly argued that bigger baskets would be one of the biggest rivers of better unit economics in quick commerce. Its “MaxxSaver” offerings were primarily introduced to increase higher basket size. 

A falling AOV means customers are buying fewer or lower value products per order, making it harder for the startup to spread fulfillment and delivery costs across every transaction. 

The company attributed part of the moderation to season factors and changes in the customer mix after it cut back on loss making users. But with Blinkit and Zepto contributing to expand aggressively, investors are likely to watch whether Swiggy can rebuild order values while keeping its newfound profitability intact. 

Elara Capital’s Taurani mentioned that execution in quick commerce remains the largest hurdle for Swiggy’s quick commerce business with the company unable to bridge the gap with market leader Blinkit.

According to him, the inability to balance profit milestones and growth may further put pressure on valuation multiples. “However Zepto’s postponed IPO plans can help Swiggy tide over the troubled waters in the near term,” he added.

This contrast is also evident in Blinkit’s June quarter performance. 

Eternal’s quick commerce arm Blinkit’s adjusted EBITDA rose to ₹102 Cr in Q1 FY27 from ₹37 Cr in the preceding March quarter, marking its fifth consecutive quarter of improvement as the quick commerce platform continued to scale its operations. 

Brokerages largely agreed that Instamart has crossed an important milestone, even if opinions differed one that comes next. While Nomura and Bernstein believe Instamart has demonstrated that its quick commerce model can become financially sustainable, CLSA and Macquarie threw in some caution around slower GOV growth, which would worsen if customer acquisitions and dark store expansion fall behind. 

Besides, its going out business, despite seeing a growth in revenue, saw its contribution margin decline on QoQ basis to 4.5%. 

Swiggy’s June quarter was less about whether it could reduce losses and more about what it had to give up to get there. The company showed that Instamart can move closer to profitability through tiger cost controls, better monetisation and more disciplined customer strategy. But those have coincided with slower growth in both food delivery and quick commerce at a time when rivals are continuing to expand aggressively. 

MARKETS WATCH: NEW ISSUES, POST-IPO JOURNEY & MORE

Zepto Puts IPO On Hold: Amid growing concerns over valuation, quick commerce major Zepto is said to have deferred its IPO by at least two to three quarters. Reports suggest that mutual funds were valuing the startup at about $2.5 Bn-$3 Bn, significantly below the company’s last private valuation of $7 Bn. Now, the startup is looking to raise about ₹1,000 Cr in a pre-IPO funding round.

Leadership Shuffle For Nykaa: Amid the heated quick commerce race, BPC major Nykaa has onboarded former Swiggy Instamart COO Ankit Jain to lead its quick delivery vertical, Nykaa Now. 

Shadowfax Charges Profitability: The logistics major began the fiscal year FY27 on a strong footing, reporting a 8X YoY jump in its Q1 FY27 profit to ₹65.4 Cr. Operating revenue grew 65% YoY and 10% QoQ to ₹1,358.1 Cr in the June quarter. On the sidelines of the strong performance, Shadowfax also announced that its CPO c Nitesh Lohiya has resigned citing personal reasons.

Ola Electric, Ather Lose Traction: Ola Electric and Ather Energy reported weaker sales in July, with registrations falling 19.5% and 9.2% month-on-month, respectively. While Ola continues to battle operational and financial headwinds, Ather’s decline comes despite its recent ₹1,300 Cr QIP to fund growth initiatives.

Mixed Quarter For Pine Labs: In Q1 FY27, the fintech major reported net profit rising more than fourfold year-on-year to ₹19.6 Cr but falling 67% sequentially, even as revenue continued to grow. The fintech major also expanded its merchant base, processed ₹4.22 Lakh Cr in GTV, and continued investing in AI, international expansion and new product lines while signalling higher margins in the coming quarters.

Klassroom To List Next: After raising over INR 11 Cr from anchor investors, the edtech company opened its SME IPO on Friday to a strong response. The IPO ended day one with a subscription of 73%, received bids for 12.92 Lakh shares against the 17.58 Lakh shares on offer.

With Inputs From Bismah Malik
Edited By Nikhil Subramanian
Creatives: Varshita Srivastava

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