Swiggy shares decline after JM Financial downgrades on balance sheet concerns

Shares of Swiggy Ltd. declined as much as 3% on Monday, September 22, after brokerage firm JM Financial downgraded the stock.

JM Financial downgraded Swiggy, the food delivery aggregator and quick-commerce operator to "reduce" from its earlier rating of "hold" and marginally trimmed its price target to ₹420 from ₹460 earlier.

The brokerage said Swiggy's balance sheet remains a cause of concern and requires remedial measures.

JM Financial's remarks come amidst media reports, which suggest that Swiggy is c

onsidering selling its 12% stake in Rapido to recapitalise its balance sheet.

While these reports are doing the rounds, JM Financial believes that Swiggy needs a much bigger war chest, as Swiggy's entire stake in Rapido can fetch it a maximum of $320 million or ₹2,900 crore pre-tax, even on the assumption that the deal happens at the upper-end of $2.5 billion to $2.7 billion valuation, as these reports suggest.

"At a time when Swiggy is fast depleting its cash balance and there are growing competitive threats, it needs to take cues from its larger peer, which recapitalised itself last year despite no visible signs of balance sheet concerns," JM Financial said in its note.

Swiggy has reported widening losses for five straight quarters, with net losses of ₹2,278 crore ($268 million) in the previous two quarters alone. Over the last nine quarters, Swiggy's cumulative losses have crossed the ₹6,600 crore ($785 million), depleting its cash reserves.

JM Financial said that despite Instamart delivering 100% gross order value (GOV) growth in the recent quarters from the previous year, it has been losing relative share to Blinkit as the latter expanded by over 130%.

With Blinkit's guidance suggesting plans to double its store count over the medium-term, the brokerage believes Instamart's curbed expansion strategy runs the risk of meaningfully falling behind its more ambitious competition.

Hence, it reiterated that Swiggy needs a much larger fund raise of more than $500 million to support its long-term ambitions in quick commerce. Till this hangover is lifted, JM Financial believes the stock is unlikely to deliver meaningful returns to shareholders.

Of the 27 analysts that have coverage on the stock, 22 have a "buy" rating, three have a "hold" rating and two have a "sell" rating.

Swiggy shares declined 2.2% to hit an intraday low of ₹448.05 apiece. The stock was down 1.9% at ₹449.75 apiece around 9.55 am on Monday. It has gained 28% in the last six months but has declined 17% this year, so far.

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