JM Financial Recommends Sale of Swiggy Amid Concerns Over Instamart's Strategy
JM Financial wants a deep-pocketed player to acquire Swiggy. Here's why
The Economic Times
Image: The Economic Times
JM Financial has downgraded Swiggy's stock rating to 'Reduce' and cut its target price by 27% to ₹270, citing concerns over the company's Instamart division, which is struggling to achieve profitability. The brokerage suggests that a takeover by a larger player is the best outcome for Swiggy investors amidst increasing competition.
- 01JM Financial downgraded Swiggy's stock rating from 'Add' to 'Reduce'.
- 02Target price slashed by 27% to ₹270, valuing Instamart and other segments at zero.
- 03Instamart is in a 'growth-versus-profitability deadlock' with no clear turnaround strategy.
- 04Swiggy's food delivery segment remains profitable but faces rising competition.
- 05Investors are advised to avoid Swiggy stock until acquisition signs emerge.
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JM Financial has downgraded Swiggy's stock rating to 'Reduce' and cut its target price by 27% to ₹270. The brokerage argues that Swiggy's quick commerce arm, Instamart, is in a 'structural deadlock', prioritizing contribution margin breakeven over market share, which could lead to prolonged value destruction. JM Financial believes that only a takeover by a larger internet or e-commerce player can unlock value for shareholders. Despite the food delivery segment showing resilience and profitability, the report indicates that Instamart's current strategy may push it towards strategic irrelevance. The brokerage has assigned zero value to Instamart and other segments in its valuation, emphasizing the need for a credible turnaround. Investors are advised to stay away from the stock until any signs of a potential acquisition emerge.
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Swiggy's investors may face losses due to the company's strategic challenges, particularly with Instamart's profitability issues. A potential acquisition could provide a path to value realization.
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