Exclusive: Swiggy aims to turn Instamart profitable by March

Swiggy’s public listing plan is on track going by the profitability in its food delivery business. And now, it has set a target for profits from its grocery delivery unit: Swiggy Instamart.

After fierce competition in the quick commerce space for about two years, discounting and consumer acquisition costs are rationalizing, according to three sources aware of the dynamics of the business.

“Swiggy has been witnessing significant improvement in Instamart’s economics in the July-September quarter,” said one of the sources requesting anonymity. “Encouraged by the level of efficiency [consumer acquisition cost and repeat purchases], the company has set an internal target to make Instamart profitable by March-April 2024.”

Instamart’s profitability will pave the way for the company’s listing by August-September 2024. Entrackr was the first to report about Swiggy’s public listing plan and profitability of its food delivery unit in February.

Swiggy invited JP Morgan, Morgan Stanley and Bank of America to get the company IPO ready next month, according to a Reuters report.

“If the company manages to bring Swiggy Instamart in [the green], it will be a sort of turnaround as it bled heavily in the past year,” said the second source who also wished not to be named.

Queries sent to Swiggy did not elicit any immediate response. We will update the story in case they do.

Swiggy’s losses shot up 80% to $545 million FY23 mainly due to investment in its grocery business, according to the company’s major backer Prosus’ annual report. Meanwhile, its earnings stood at around $900 million in the last fiscal year (FY23). In FY22, Instamart contributed Rs 2,036 crore in revenue to Swiggy’s total income of Rs 5,705 crore.

Sources outline that the company is still figuring out the right valuation for the public market but it’s likely not to settle below the $11 billion valuation mark. According to TheKredible, the firm was valued at $10.7 billion in its last fundraise when it cornered $700 million in February 2022.

When a grocery or quick commerce startup targets profitability, it usually signals two things. That it has arrived at what it considers a sustainable level of repeat usage, where it can consolidate for a while before trying anew for new users. Secondly, the cost of every new user from here on is unsustainable. Accepting this, and targeting profitability will usually lead to a serious drop in costs linked to user acquisition and marketing. If that doesn’t lead to profitability soon, then the startup simply has to look at a fresh round of funding, or a buyer for itself in due course.

However well funded it might be. Swiggy is that startup which actually has the option of an IPO, having built a strong enough position in the market. We believe it will make sense in FY25, which will also give it a little time to try and ensure growth momentum (that will severely impact valuations) doesn’t taper off too sharply in the quest for breakeven.