Malhotra added that expansion plans have slowed, though the recent fundraise from its stake sale in Rapido could provide room to accelerate. The company had earlier indicated it would pause after reaching 1,000–1,100 stores by the end of the quarter, while rival Blinkit has raised its targets to 3,000 stores in the medium term.
He also said the additional cash strengthens the balance sheet at a time when Rapido is preparing to enter the food delivery space.
Shares of Swiggy fell on September 24 after the board approved the sale of its entire 11.8% stake in Rapido. The company will sell shares worth ₹1,968 crore to MIH Investments One B.V. and ₹430 crore to Setu AIF Trust, in line with guidance given at the end of the June quarter.
The company, which has a current market capitalisation of ₹1,09,770.34 crore, has seen its shares lose more than 3% over the last year.
These are edited excerpts of the interview.
Q: The stake sale of Rapido via Swiggy – they’ve sold the entire 12% stake. They’ve got about ₹2,400 crore. So, if you could just tell us now what the Swiggy balance sheet will look like, the cash on the books vis-à-vis the projected cash burn going ahead, and whether Swiggy will require more of a fundraise?
A: The company had around ₹5,300 crore of cash at the end of the June quarter, and they have raised ₹2,400 crore, so that’s around ₹7,700 crore, with almost a billion dollars. In terms of projected cash losses, the cash losses in Instamart should start coming down. They peaked in the first quarter. Food delivery continues to be profitable. And even from a capex perspective, the company has loaded stock for expansion, so we expect the cash burn to come down, and this fundraise will meaningfully expand the runway the company had before this fundraise. So, on the whole, we think it’s a positive thing. This is something the company had quite candidly disclosed in the first quarter results.
Q: We have cash burn numbers, because just comparing, Swiggy is near $1 billion or ₹7,700 crore, versus Eternal’s ₹18,000 crore plus, nearly ₹19,000 crore. There’s clearly a big difference.
A: The thing is, Instamart burned around ₹870 crore of cash last quarter. That number will definitely come down this quarter. Plus, like I said, food generates around ₹200–300 crore of cash, and capex has come off quite meaningfully. So, quarterly, the cash burn is not as much. Versus Eternal, the cash situation is much better. Food is significantly more profitable. The loss in Blinkit is much lower. In fact, Blinkit is likely to turn EBITDA break-even in the next couple of quarters, based on our projections.
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So, from that perspective, yes, Eternal is ahead, but this obviously helps Swiggy from a near- to medium-term perspective. We do feel that maybe it will not harm if they do some additional fundraising in the foreseeable future. But this, in itself, should be good for them from a meaningful runrate and growth perspective.
Q: By the looks of it, do you believe that Swiggy is currently falling behind the quick commerce expansion race in comparison to Eternal? Because Eternal has laid out its targets very clearly for Blinkit, they want a certain number of stores in this period of time, regardless of whether they turn profitable or not. So, would an additional fundraise further propel Swiggy? How much of this fundraise would also help in expanding more dark stores for Instamart?
A: So, the company had essentially mentioned that, post reaching around 1,000–1,100 stores by the end of the quarter, they would slow down their store expansion. And Blinkit, like you rightly said, has moved ahead. It was initially targeting 2,000 stores by the end of December of this year, and now they’re talking about 3,000 stores, not by the end of this year, but from a medium-term perspective.
So, from that, yes, Swiggy is slower on expansion plans. What this fundraise could potentially do is maybe help them accelerate the expansion slightly, but I don’t think they’ll go back to what they were doing in December or even the March quarter. Maybe they will increase slightly. Also note, in terms of cash situation, Rapido is also getting into food delivery, so it’s always good to have some dry powder, whether you need it or not.
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Q: Can you explain the rationale of transferring Instamart to a wholly owned subsidiary? They’re planning to hive it off. What is the rationale behind it and the implications for Swiggy?
A: The thing is, it just cleans up the structure. Think of it like a blanket – the Blinkit–Eternal structure. Now, Instamart will be a separate subsidiary. It increases flexibility. What that flexibility could mean can be a variety of things, many of which may or may not happen. So, it’s just cleaning up the structure more than anything else. I don’t think this changes how they do business. It doesn’t mean anything for financial estimates.
Q: So, you don’t think they will now move to an inventory-led working model, or are looking at strategic partnerships or an eventual listing of Instamart? Should shareholders start thinking about that, or is it too far down the line? Does it alter your estimates of Swiggy?
A: Right now, they are thinking of – first step is to hive off, then see how it comes through. But like I said, it opens up avenues to do things in terms of corporate actions, like a specific fundraise. From an earnings perspective, nothing changes from our side.
Q: So, you believe that despite this slowdown in their dark store expansions, it would not accelerate their path towards profitability, at least on an EBITDA level, and then on a profit after tax (PAT) level. What are the timelines you have projected for Swiggy to turn positive, both on EBITDA and PAT?
A: At an aggregate level, it takes some time for the company to break even, but food is profitable. Instamart, in terms of contribution margin, we expect it to break-even sometime in the middle of the next fiscal. EBITDA break-even for Instamart will take a little longer.
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