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On Thursday, JPMorgan analyst Ankur Rudra adjusted the price target for Swiggy Ltd (SWIGGY:IN) shares, reducing it to INR620 from the previous INR730, while continuing to recommend an Overweight rating on the stock. Rudra’s analysis highlighted a mixed performance in the company’s third-quarter results, pointing out strong developments in the Food Delivery (FD) segment but noting challenges in the Quick Commerce (QC) execution.
Swiggy’s FD segment showed a quarterly growth of 3% and an annual increase of 19%, which is a recovery in market share from its competitor Zomato (NSE:ZOMT), which posted 2% quarterly and 17% yearly growth. The company’s ability to expand Contribution Margin (CM) and EBITDA margins by 80 and 90 basis points, respectively, was underscored as a sign of effective innovation and execution, particularly with initiatives like Bolt. Rudra emphasized that Swiggy’s unified app strategy is proving beneficial, as evidenced by competitive profit outcomes despite a scale disadvantage.
However, the QC segment experienced difficulties in both growth and margin performance. The Gross Order Value (GOV) rose by 16% quarterly and an impressive 88% yearly, largely due to a 10% increase in Average Order Value (AOV). Nevertheless, the number of orders grew only slightly by 7% for the quarter. This modest growth came in spite of increased spending on performance marketing, which saw a fixed cost rise of INR1 billion, and higher user subsidies, accounting for 2% of GOV. Additionally, the costs associated with unopened stores contributed to operational deleverage, resulting in a sharp decrease in CM and EBITDA margins by 250 and 450 basis points quarter over quarter.
Rudra’s remarks reflect the contrasting outcomes within Swiggy’s business segments. While the FD sector is advancing and outpacing its rival in terms of growth, the QC division’s performance is hampered by increased marketing expenses and operational challenges. Despite these headwinds, JPMorgan maintains a positive outlook on Swiggy’s stock with an Overweight rating, albeit with a reduced price target, indicating a belief in the company’s long-term potential.
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