Swiggy's shares decline 43%, raising profitability concerns

Swiggy's shares have dropped significantly, losing 43% from their highest point due to increasing cash burn and tough competition in the quick commerce market. This decline has wiped out around Rs 60,000 crore from the company's market value. Currently, the shares trade 9% below their IPO price of Rs 390. The competition in the ultra-fast delivery sector has intensified, leading many companies, including Zomato and Blinkit, to offer heavy discounts. This trend has resulted in reduced profitability for everyone involved. Analysts express concerns about Swiggy's ability to achieve profitability in the quick commerce space in the near future. Expecting losses to widen in the coming years, some believe the situation may improve by FY27. Swiggy faces challenges on two fronts. Its food delivery business, which was once its main growth area, is experiencing slower growth. Simultaneously, its expansion into quick commerce is proving more expensive than expected. Some analysts suggest there is potential for long-term growth in both sectors, despite the current headwinds. Despite rising losses, some analysts view the recent market drop as an opportunity for long-term investors. They expect the industry's dynamics to improve starting in FY26, as discounts stabilize. ICICI Securities recommends buying Swiggy shares, arguing that the food delivery business remains strong. The long-term prospects for quick commerce are also seen as promising. Analysts anticipate significant growth in the sector despite ongoing cash burn. There is debate among investors about whether Swiggy's valuation reflects its potential adequately. Some believe the current stock price undervalues the food delivery business while assigning a negative value to quick commerce. Investors now face a decision. They must consider both the risks of continued cash burn and the potential long-term growth in digital commerce. Swiggy is at a critical juncture, and how it manages the next few months will be key to determining whether this decline presents a buying opportunity or signals more serious issues ahead.