Swiggy’s share price plummeted 7.8% to hit a fresh 52-week low of Rs 385.25 on Thursday. The stock lost 6.5% in the pre-open session implying an open at Rs 391. The fall in stock price came after the company’s net profit declined in the third quarter of FY25 on the back of dark store addition and increased competition. 

Nuvama sees dark store expansion as headwind for Q4

Nuvama Institutional Equities, in a research note, said that the dark store expansion accelerated in the second half of the quarter and picked up further in January, creating a headwind for the next quarter. Swiggy’s growth was in line with expectations, but margins dipped significantly below consensus. “Instamart’s adjusted EBITDA margin fell 420bp QoQ while the contribution margin (CM) fell 270bp QoQ. The CM decline was partially due to dark store additions, though the magnitude of the miss suggests CM of existing stores also posted a compression,” said Nuvama. “Management reiterated its plans to more than double active dark store area to 4mf by Mar-25 (versus 1.5msf in Mar-24) by doubling store count and raising the store size.” 

Motilal Oswal says aggressive dark store expansion hit profitability

Another brokerage house, Motilal Oswal, said that the company’s net profit was hit by the aggressive dark store expansion. It expects that Swiggy will likely report a net profit margin of -19.5% in FY25, -11.4% in FY26, and -5.4% in FY27. It maintained its ‘Neutral’ rating on the stock with a target price of Rs 460. “We believe food delivery remains a stable duopoly; however, increased competition and aggressive dark store expansion have rebased profitability expectations for the quick-commerce sector in the near term,” said Motilal Oswal. 

The international brokerage house Bernstein has slashed the target price to Rs 575 from Rs 635, maintaining its ‘Outperform’ call on the stock. However, it sees Swiggy’s food delivery growth ahead of Zoamto, expanding market share. The company’s quick commerce was impacted by hyper competitive environment. Its q-commerce gross order value was driven by average order value. 

Another international brokerage firm CLSA said that food delivery is showing way towards profitability but quick commerce a hurdle. It sees dark store and city expansion a positive. It has maintained its ‘Outperform’ call on the stock, with a target price of Rs 750 per equity share.