Swiggy’s share price fell 7.8%, reaching a new 52-week low of Rs 385.25 on Thursday. The stock dropped 6.5% in the pre-open session, indicating an opening price of Rs 391. The decline in stock value followed a decrease in the company’s net profit for the third quarter of FY25, attributed to the addition of dark stores and heightened competition.

Nuvama Views Dark Store Expansion as a Challenge for Q4

In a research note, Nuvama Institutional Equities stated that the expansion of dark stores accelerated in the latter half of the quarter and continued to rise in January, posing a challenge for the upcoming quarter. While Swiggy’s growth met expectations, its margins fell 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 attributes profitability decline to aggressive dark store expansion

Another brokerage, Motilal Oswal, reported that the company's net profit was impacted by its aggressive dark store expansion. It forecasts Swiggy’s net profit margin to be -19.5% in FY25, -11.4% in FY26, and -5.4% in FY27. The firm has kept 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.

International brokerage firm Bernstein has lowered its target price for Swiggy to Rs 575 from Rs 635, while maintaining its ‘Outperform’ rating on the stock. Despite this, Bernstein anticipates Swiggy's food delivery growth will outpace Zomato, driving market share expansion. However, the company's quick commerce segment was affected by the highly competitive environment, with its q-commerce gross order value driven by average order value.

Another global brokerage, CLSA, noted that while food delivery is moving towards profitability, quick commerce remains a challenge. It views dark store and city expansion positively and has kept its ‘Outperform’ rating on the stock, setting a target price of Rs 750 per share.