Bothra says while some of Swiggy competitors have been raising funds, that is mostly defensive capital. Swiggy has a very strong balance sheet with Rs 8,000 crore plus cash balance existing with us. They have a profitable food delivery business that continues to accrue cash into the treasury and the quick commerce business, which is expected to turn profitable in six to seven quarters and for which they have a substantial cash balance. So, there are no near-term fundraising plans.
On the overall consolidated EBITDA loss and the net loss, which has widened on a sequential basis, what is adding to the pressure on the bottom line and when can we expect the loss to start narrowing?Rahul Bothra: If you look at our overall numbers, we have improved our adjusted EBITDA by 30% in our B2C GOV businesses over the last year with an improvement of Rs 147 crore. So, the operating numbers are the key. If you look on a sequential basis on a quarterly number, there is a slight increase in our loss due to the share-based compensation cost that has gone up.
We have given a certain amount of performance ESOPs grants to management. A lot of these ESOPs are linked to performance of the share price and therefore, it is completely aligned to shareholder interest. 55% of the expected ESOP cost is linked to the performance grants. So, this is the marginal increase that we have seen. However, on a year-on-year basis, we have seen a 5% reduction in our reported loss despite a Rs 91 crore increase in our ESOP charge. So, we have to see it in the light of both the yearly context as well as the quarterly context.
Also, the food delivery business EBITDA has actually doubled on a sequential basis. So, from a Rs 57 crore number, this number has now come to 112 crores. So, we have doubled our operating margin in the food delivery business from 0.8% to 1.6%. The quick commerce business, we have seen a slight reduction in the reported EBITDA loss, that is because of the expansion that we have seen in the overall and the growth trajectory which has also accelerated.
Sequentially, we have grown 24% versus the previous quarter of 17%. The expansion of the dark store footprint has resulted in incremental quarterly loss. But on a YoY basis, we have again seen significant improvement in the contribution margin trajectory as well as the EBITDA percentage trajectory.
But you have guided for a steady state take rate and contribution margin to expand to 20-22% and 8% to 9% respectively, which will mean that the adjusted EBITDA margin should be around 4% to 5%. But what exactly is the timeline for this?
Rahul Bothra: We have given guidance specifically both the contribution margin and the neutrality, which will happen in the December 2025 quarter, and the adjusted EBITDA guidance three quarters from there on, which is in the September 2026 quarter. This is on the EBITDA profitability. From there on, you should expect anywhere between 8 and 12 quarters for steady state profitability to be hit, which is the 4- 5% guidance that we have given on the EBITDA line.
Is the food delivery PAT growth rate of 81% sequential and GOV rate of 5.6% sustainable on a sequential basis?
Rahul Bothra: On the margin front, we are guiding that this business has the potential to get to 5% positive EBITDA and it is a combination of both our take rate, which will increase, as well as some cost reduction that we are seeing on the business on the delivery cost side by better utilisation of our rider network and better efficiency and throughput per hour and also the operating leverage. So, even if you look at the last 12 months, we have delivered close to 90 basis points just in operating leverage as the business scales up. Going forward, from the 1.6% that we have been able to achieve in the recent quarter, we expect the steady state guidance of 5% to come through as a combination of all three.The take rates in the quick commerce business have come down to around 15.2%, while the analysts believe that at least 19% is needed to face competition. What is your view?
Rahul Bothra: There are two or three levers that we have. One is the advertising piece of the business. So, from close to zero six to eight quarters ago, today that business has substantially improved on a take rate basis for us. The other is the enablement services that we provide to the marketplace sellers. We have increased our overall infrastructure on the warehousing capacities, as well as logistics network, and we continue to increase the bouquet of services that we provide to our marketplace sellers. We expect the take rate to be on a continual improvement path. And as we have written in our guidance, we expect the take rate to be 20-22% as steady state.
Let us shift focus from food delivery to quick commerce now and the Q-comm net loss has also widened to about Rs 317 odd crore from the earlier 280 in the previous quarter. What led to this buildup in loss and when is it that you expect the losses to come down?
Rahul Bothra: As we had mentioned, while the contribution margin has improved to negative 1.9%, we have seen expansion in both the marketing investments for the accelerated growth that we have seen, as well as some of the increase in the overheads to support the growth.
The average order value or the AOE has come down at Rs 499 per order versus Blinkit’s, which is almost Rs 660. What kind of growth are you eyeing in the average order value from here on and is there a specific strategy in place to make that happen?
Sriharsha Majety: If you look at the overall AMV journey, for us it has been a journey because we began originally in a 30-minute grocery-only format and over the last one, one-and-a-half years we have been upgrading our stores to larger sizes and we have talked about that in the letter and the quarterly report as well. So, that is happening as we speak and in addition we are also stocking more and more SKUs every passing quarter. All of this coming together should mean and we are guiding that the average order value can grow at a double-digit percentage pace every year for the foreseeable future.
In a recent report on the Q-Comm space, it suggests that Zepto has actually captured a slightly larger market share than Swiggy Instamart, in the Q-Comm sector and now it is second to Blinkit, pushing Instamart to number three on the ranking. What is the strategy to expand your market share and move up the chain?
Sriharsha Majety: We would rather focus on our own growth and our own positioning in the market. And if you look at, let us say, the overall last four-six quarters, we have gone to become like the fastest delivery speed player in the market and our transformation right now is underway that allows us to add more and more assortment to the consumer. So, for us, as we think about the overall positioning for Instamart in the category, building on the momentum that we have, we want to go harder and harder on offering consumers incredible assortment and then continuously iterate to figure out new categories that can fit into the quick commerce chassis.
For example, we have run some experiments that are already live in the pharmacy category and we will continue to do more of these even in the future.
I wanted to get a better sense regarding the dark store edition. You have added 52 new stores in Q2. What is the pace that you are eyeing going forward and let us say by FY25 end what is the target that you want to achieve with respect to dark stores?
Sriharsha Majety: The guidance that we are currently giving is to suggest that we will be doubling our store footprint year on year from March ‘24 to March ‘25. We are guiding for 1,050 stores in March ‘25. But if you also factor in the average store size increasing, our overall square foot footprint is going to go up by two-and-a-half times by March 25 from March 24.
You reported a cash balance of about Rs 4,500 odd crore September end, which is significantly lower than your peers, who have both recently carried out fundraising as well. How do you plan to remain competitive with your current cash balance? Are you looking to jump on the fundraising bandwagon soon?
Rahul Bothra: While we have seen some competitors raising, that is mostly defensive capital. We have a very strong balance sheet with Rs 8,000 crore plus cash balance existing with us. We have a profitable food delivery business that continues to accrue cash into the treasury and the quick commerce business, as we said, will turn profitable in six to seven quarters, for which there is substantial cash balance with us. So, there are no near-term fundraising plans for us.