Ladies and gentlemen, good day, and welcome to Swiggy Limited Q2 FY27 Earnings
Conference Call. All participant lines will be in the listen-only mode and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need assistance
during the conference, please signal an operator by pressing star and then zero on your touchtone
phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Sumant Sharma from the Investor Relations team. Thank
you, and over to you, sir.
Sumant Sharma:
Thank you, Operator. Hello, everyone, and welcome to the Q2 FY27 earnings conference call
for Swiggy. Our financial results and shareholders’ letter have been published on the exchanges
and the information pack has been placed in the Investor Relations section of our website,
www.swiggy.com.
We would like to inform you that the management may make certain comments on the call that
one could deem forward-looking statements. Specifically, the financial guidance and pro forma
information that we will provide on this call are management estimates based on certain
assumptions and have not been subjected to any audit review or examination procedures. Swiggy
does not guarantee these statements and is not obliged to update them at any time.
Joining us on the call today are Sriharsha Majety – MD and Group CEO; Rahul Bothra – CFO ,
Rohit Kapoor – CEO of Food Marketplace and Nandita Sinha – CEO of Instamart
With this brief preamble, let us start the Q&A. Operator, you can please go ahead.
Moderator:
Thank you very much. We will now begin with the question-and-answer session. Your first
question comes from the line of Gaurav Malhotra with Axis Capital.
Gaurav Malhotra:
Just a couple of questions on food and quick commerce. So firstly, on food, if you can give us
some sense on what you're seeing in terms of emerging competition from Rapido, we see Flipkart
Minutes also doing something in food. So how are you sort of seeing the landscape?
Sriharsha Majety:
Hi Gaurav, Harsha here. I'll take that first question. Actually, as of now, only Rapido is live to
the general public and Flipkart has opened to the public at scale even in Bangalore yet. We are,
of course, closely watching the market. We happen to be participating in this in the value market
through our pilots with Toing.
And we've talked about it extensively in our shareholders’ letter as well. I think over the last 45 quarters, we are closely monitoring the business health, the product market fit. And we're quite
excited by what we are seeing as of now. Competition has begun, but we're able to respond pretty
strongly both from the Swiggy asset platform as well as the Toing asset.
Our sense, however, as of now, and that's the reason why we're investing in Toing also right now
is that we do believe that the market can expand if the right proposition offering value to
consumers while being sustainable can be cracked. For us, it's a specific interest also because
Toing in some sense for us insurance of a large profit pool at its worst and in addition to a large
profit pool at its best.
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And that is the reason why we continue to play for it. We continue to monitor all the health
metrics and are continuously revising our plans and iterating on the business based on everything
we know.
Gaurav Malhotra:
Got it. In the shareholders’ letter, even in food, you have sort of mentioned about investments
towards the affordability trust. So, Toing, is where the affordability focus is. So, is there some
sort of an overlap happening between the food and Toing from an affordability focus
perspective?
Sriharsha Majety:
There is some overlap, but we've also talked about the extent of the overlap and how it's been
changing with time. Every passing month as we get scale, we're seeing the overlap actually
improve as in reduce, which is what gives us confidence that it is the opening of a new market.
There is going to be some, but we monitor it closely, and it is a very healthy right now as we
see. And as it scales, it's starting to get better. The overlap percentage is reducing, which for us
increases our confidence that this is the opening of a new market.
Gaurav Malhotra:
Got it. And just one question on quick commerce. Some of the underlying metrics in quick
commerce were decent, right in terms of the MTU additions, your throughput per store, those
sort of moved up. But the delta change in losses seems a little bit on the higher side. So, if you
could just help us understand that. I understand in the shareholders’ letter, you've given us some
sense on where the extra margin compression has come from.
But if you can give us some sense on, how should we think about these losses going forward?
Also, now that you started to sort of refocus on growth, would that also mean that you will be
getting back into focusing on the Tier-2 markets?
Nandita Sinha:
Nandita here. This quarter, we've got back on the growth trajectory. We've had a good quarter
with a 13.4% QoQ NOV growth. What makes us excited about this growth is the fact that the
quality of growth has been very good. We've seen our retention metrics go up and our frequency
metrics have go up by 4% QoQ. We've added 1.3 million MTUs, as you said.
We've built this on the back of habit building, which has been on the back of cohortized user
bases on which we have done habit building, and we have invested behind our differentiated
assortment proposition. This makes us confident on the quality of growth that we've been adding.
As a result of this, we believe that as we continue to build the quality of growth, both on the user
side, which is on building our frequency, habits building our differentiated assortment, which
has actually given us great results in terms of the retention that we see on the platform and also
increase the productivity that we have on the throughput of each pod.
This will actually take us towards sustainability and profitable growth. So, this is our journey
that we will continue to make. We are confident of the quality of growth that we've added in this
quarter.
Gaurav Malhotra:
Got it. And the second question in terms of the Tier 2 markets and how are you thinking about
it now?
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Nandita Sinha:
We believe that we have laid out our network in terms of T1 and T2 markets. We will continue
to focus on markets where we are seeing growth in the same manner of building back our
habituated users and reaching out to them through both the habit building categories like fresh
and staples as well as extending our differentiated assortment category.
This is how we will build business and the focus will be to continue to build user quality across
the market as we go forward.
Moderator:
The next question comes from the line of Vijit Jain with Citi.
Vijit Jain:
In the letter, you mentioned that Toing's success can basically get the food overall marketplace
growth to 25-30% from the current range of 18-20%. At the moment, would you be closer to the
lower end of that number, 25% odd? In general, that 7-10% extra growth in GMV terms
translates to maybe 10-15% higher volumes. Am I roughly in the right ballpark when I look at
those numbers in that lens?
Sriharsha Majety:
I can't answer the specifics of the second part, but to the first part of your question, we would be
closer to that lower end of that range that we talk. We mentioned in the shareholders’ letter as
well, we're also learning and getting even more proof points about the business at this time. And
that's where we are going to have investments range bound while we get even more discovery
of some key questions that we have.
Vijit Jain:
Got it. Harsha, just a related question to that. Now is therefore Toing now at a point where
shutting this down, calling it an experiment is now not likely at all? Would you be comfortable
to make that assessment of Toing at this point of time? And if you can talk also about the
retention cohorts that you're seeing on Toing.
You've mentioned retention cohorts on Instamart at 60% month 1 and so on. So, any colour you
can give on how the retention cohorts of Toing are doing right now based on whatever the right
benchmarks for it should be? That will be super helpful. That was my second question.
Rahul Bothra:
Hi Vijit, Rahul here. As your question it's an experiment or how it's ready to be scaled, I think
we have asked for maybe another quarter or two. With enough green shoots we are seeing to be
able to also call out that this investment is showing the frequency growth that we are hoping for,
the category extension in terms of new user acquisition to the platform. And more importantly,
some of the earlier cities turning unit economic positive for the repeat users.
Now you can imagine that in an affordable offering where the average of basket sizes are a
fraction of, say, the main platform it is extremely hard to build the business because it requires
significant density. It requires the cost to serve to match the revenue, which is also a fraction of
the main platform. So our ability to navigate many of this also comes from the fact that we are
building in the back of the original chassis that is fully expressed in the main platform.
So the incremental overhead that we incur is just on user acquisition. The fixed cost is very, very
low in this business. It's all discretionary. Therefore, our ability to scale up or dial down is very
agile in the segment. So you should probably give us another quarter or two before we call out
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whether this experiment has worked. But enough we see to be able to give you that direction is
the right direction.
Rohit Kapoor:
Rohit here, just to add to what Rahul said, another notable point is that what you see is mentioned
in the letter is that a sizable number of restaurants are seeing Toing volumes contribute
meaningfully to their platform, their restaurant share. So it is not just on the consumer side, but
also in the cities we are present. If you go and talk to restaurants today, they will talk about the
two existing players and Toing quite regularly. It's becoming meaningful for restaurants as well.
Rahul Bothra:
Just to answer your second question on the retention metrics. One thing we can call out is that
we are seeing better retention metrics than the core app. Not only the retention metrics are better,
but the frequency of even the dual appers is 25% higher than the singular app. As I said, the
metrics look in the right direction. At the same time, we need to continue to scale the business
with the right business market economics is where the current focus is.
Sriharsha Majety:
Building on top of the Swiggy platform and the Swiggy pipes is one of the things that we are
generally very excited about. That's what he said by saying that it is discretionary and optional
and even to this quarter or in general, most of our spending is in new user acquisition and
activation as opposed to any other loaded cost that traditional new business would have to take.
This and the ability to constantly be able to open up the market at a fraction of the cost that new
insurgence might have is something that motivates us to continue to play and find even better
answers over the next two quarters.
Moderator:
Your next question comes from the line of Sachin Salgaonkar with Bank of America.
Sachin Salgaonkar:
I have three questions. First question, what steps, Harsha, Rohit, you guys are taking to avoid
Toing cannibalizing Swiggy? And I'm asking that because when we look at the growth rates of
Swiggy and compare that with Zomato, one gets a sense that for the last couple of quarters, they
are a bit slower. Any specific thing to watch out for, but I would love to understand how you're
looking at it from that point of view.
Rohit Kapoor:
Rohit here. Let me take the question in two parts. On the growth rate, if you see what we’ve
called out in the letter, that in Sep-26 we were back on 20% plus growth just talking about
Swiggy. And we see us maintaining the 18-20% stand-alone guidance on Swiggy. On Toing, 2
out of 3 users that we're seeing are new to platform.
As Rahul mentioned, even on the users who are using both, we are seeing 25% higher orders per
user. It is doing two or three jobs for us clearly the combined strategy. One is open up the market
to a new set of consumers who either have very low frequency on food delivery or they're not
on food delivery.
Point number two is give more choices to consumers on what occasions, which app they want
to use, and they are showing that they are rewarding that strategy with a higher orders per user
frequency. And third, obviously, there's a competitive shift in landscape.
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As Harsha said, that clearly, we see there a robust strategy to participate in the market where
there is 10 years of legacy of building a food delivery business and new entrants entering. So it's
insurance we feel, but on the upside, it has significant potential to unlock value in the future.
Sachin Salgaonkar:
Clear on that, Rohit. Second question on quick commerce. I see in shareholders' letter, you guys
have mentioned contribution margin to remain in the range of 0 to -100 bps with sequential
improvement there on. Is this subject to better retention and maturity of cohorts? I'm asking this
question because competition is still intense. What points we should look to see that you guys
will go down and start improving the contribution margin versus contribution margin remaining
at these levels only?
Rahul Bothra:
Yes. What we had called out even in the previous quarter was that we need a bit of reset in terms
of our growth. And the 0 to -100 basis points guidance that we have given was keeping that
flexibility in mind. As you have seen, we have grown at a healthy pace of 13% plus in the
previous quarter and our guidance for the current quarter is also to be able to deliver doubledigit growth on a sequential basis. We will obviously operate within those tight guardrails.
It is important that the users that we have churned out which were unprofitable and the quality
that we have hence acquired and continue to show better behaviours both from a retention
frequency delta is something that we want to maintain. And that will ultimately give us a positive
contribution margin from the existing users that we will operate with.
While the competition intensity remains high, I think as a platform, we have made various steps
towards getting better customer experience in the market. Therefore, we are very confident of
being able to do that without worrying about the competition in the market.
Sachin Salgaonkar:
Got it. So what you're saying is we should expect an improvement in the revenue as well as
contribution losses or contribution margin improving going ahead?
Rahul Bothra:
So, as I said, it's hard to give a specific number, but what we have guided is for 100 basis points
improvement in Adjusted EBITDA in the current quarter.
Sachin Salgaonkar:
Okay. And that 100 basis points of Adjusted EBITDA has no benefit coming from the move to
inventory model, right, because the move to inventory model happens mid of next quarter.
Rahul Bothra:
That's correct. So we will start the process in the middle of current quarter, and it is expected to
fully transition over the next two to three quarters.
Sachin Salgaonkar:
My last question is and sorry to harp on this, I asked you guys this question in the past also. How
should we think about the dark store additions and the growth? Because clearly, one of your
peers had guided to reach 5,000 dark stores. You do see their growth also accelerating and
outperforming the growth of others in the industry out there. You guys have a decent amount of
cash on balance sheet. So what would make you guys to change the strategy in terms of adding
more dark stores and hence, in a way, benefiting from a slightly better growth out there?
Rahul Bothra:
I think Sachin, at the cost of repeating, I think we do maintain the fact that store addition is going
to be a factor of growth, right, because we are present in the 130 plus cities that we are. We don't
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have a near-term expectation to increase the geographical coverage. So therefore, the store
addition, which competition may be doing store city addition is therefore not to be considered
in our case.
Wherever there is going to be growth and which is maxing out of capacity, we are adding stores.
So, you will continue to see us expanding the number of stores even in the current quarter as the
growth continues in those hyper local zip codes. As you can also see from the overall capacity
utilization, last quarter, we increased it by close to 10% on an orders per day per store. But it
still leaves sufficient room to continue the growth journey without having to necessarily increase
the pace of store expansion. From a coverage standpoint in these cities, we are well covered.
So even if you look at the speed metrics, we are best-in-class compared to some of the
competition out there. From the assortment standpoint as a combination of our larger stores,
which are the mega stores as well as the hyperlocal normal stores, we are able to provide the
assortment that is required to get the growth that we are on. So we don't see the need to
necessarily add a lot many more stores. And as growth continues, you will see that store
expansion continuing.
Moderator:
Your next question comes from the line of Abhisek Banerjee with ICICI Securities.
Abhisek Banerjee:
Just on the store expansion, you just spoke about how you are adding stores wherever you are
maxing out in terms of capacity. Now could you give us some colour on what that maxing out
of capacity looks like in terms of orders per dark store per day? So what number do you hit and
then you have to put up a new store? And what proportion of your total stores would be at that
kind of a level, if you can give some colour on that.
Rahul Bothra:
We typically start the decision to open a new store in that zip code when the store crosses around
2,000 orders a day. And by the time the store is up, which typically takes 2-3 months, those
stores start doing roughly 2,300-2,500 orders per day. Every quarter, the pace of expansion, as
you see if you are adding 5-7% stores, that's the number that are maxing out on capacity, if the
pace of growth continues at this level.
Abhisek Banerjee:
Understood. The proportion of stores where you have that 2,500-odd throughput of your overall
store universe.
Rahul Bothra:
As I mentioned, every quarter, roughly 5-7% of network is close to that.
Abhisek Banerjee:
Okay. So this is not a cumulative number, right?
Rahul Bothra:
No, it changes every quarter. So if you are delivering the growth, say, sequentially on the doubledigit side, you will see more stores getting out of capacity and therefore, the store addition
becomes a natural outcome.
Abhisek Banerjee:
Understood. The market leader is now talking about expansion into Tier 3 cities. What is your
experience there? So do you think that there is some more juice to kind of get in? One thing we
are kind of noticing right, that whoever kind of acquires the customer first seems to kind of get
the benefit of some sort of a loyalty rather than trying to acquire second and then you are
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basically also searching for the highest quality users. Does it not make sense for us to explore
that at this point of time?
Nandita Sinha:
I think we have growth, which is near term largely, in the large cities. So that is where we are
focused. Like I said, we are building the business and the focus towards execution on building
on our habituated users. We do see a large part of our growth in the large cities.
Therefore, we will continue to focus there. And like I said, we are not looking at geographical
expansion beyond where we are today, and we will continue to focus on the all the cities that we
are present in, and we will do that via the habituation that we have built by taking the users
through this journey. That's where we will focus on.
Our playbook for focusing on this journey remains the differentiated assortment that we are
building. 1 in 8 orders today is of Noice, and that gives us a much higher retention. Similarly, as
we build our pod productivity, that will give us a much higher advantage in terms of how we are
growing. So these will continue to be our focus areas in the large cities that we are.
Abhisek Banerjee:
Understood. In terms of this quarter, there was obviously a timing difference in the festive season
vis-a-vis last year. So would it be correct to think that the next quarter should see a much faster
kind of growth or would you not rather kind of commit a higher number at this point of time?
Nandita Sinha:
Right now, we won't comment as we are in the beginning of the quarter.
Abhisek Banerjee:
Understood. And just one last question on food delivery. You are obviously sticking to the
guidance of 18-20% YoY growth for the full year in the core business. Now one thing that I
would like to understand is one way of doing that would be just to keep the margin flat and
reinvest into growth. Is there a margin target that you have in mind where you start doing that
or r would you just rather allow it to kind of continue the way it has been expanded ?
Rahul Bothra:
As you have seen, we've added close to INR50 crores on an absolute Adjusted EBITDA for the
quarter and in a market where competition from all forms is only going higher. 5% of GOV
trajectory is an outcome which is what we have stated. And you should continue to see operating
leverage in our business, which we continue to accrue.
At the same time, you may have seen our monetization, it is at the highest ever with take rate
exceeding 26%. So there are sufficient levers which are available to us to be able to continue
this journey to 5% and that's something that we are committed to.
Beyond that, I think we start making choices around reinvesting back for growth because I don't
think the margin journey necessarily stops at 5%. There is continued densification that happens
, cost synergies that come through as well as operating leverage that you should expect in the
results.
Abhisek Banerjee:
Got it. And just one last thing. Could you give any demographic profiles of the Swiggy core
users versus the Toing users, if there is any differential that can be noted?
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Rohit Kapoor:
We don't collect that much demographic data. But from our consumer dipsticks and
understanding, the Swiggy platform caters to a pretty much a wide demographic starting right
from the adolescents for whom the order is made by maybe the parent or elder sibling to right
up to senior citizens.
Our sense is that for Toing, the audience is far younger. And probably 70-80% of the users are
sub 30 years of age and many of whom are coming into either they are in the final years of
college or coming into employment and first-time jobbers and who will form the consuming
class 3-5 years out, right, in a significant way. I think that's the difference that we see.
Moderator:
Your next question comes from the line of Jignanshu Gor with Bernstein.
Jignanshu Gor:
I had two questions. One for Nandita on quick commerce. So, one of the things that I see which
is markedly different between our performance and the performance of the other listed peer is
the monetization rate. I wanted to understand your plan to improve this and where do you think
is the key issue because this rate has not really moved in the last 3 quarters.
And I would sort of also expect that this is a project or effort which can run in parallel to the
scale up, right, while there is some dependency. So I just want to understand how you are
thinking about improving monetization for our quick commerce orders.
Nandita Sinha:
Thanks for the question. This is something that we are actually quite focused on in terms of
building on two counts. I think as we look at our strategy in terms of engaging with brands on
differentiated assortment, it allows us the opportunity to co-create with brands and that increases
our engagement with them.
On the other hand, I would say that also our ability to have a better set of users and more
productivity on our pods, puts us in the flywheel with growth, especially for users and
geographies, which we can then actually build together with brands.
So, if you look at the loop that we are creating with differentiated assortment as well as by
creating a high habit user, it allows us to engage better with our brands and therefore, take up
our monetization rates. We've made some movement in this quarter. And we will continue to
work on this stream because this allows us to give a great assortment to our customers as we
work together with brands. So, this is something we focus on.
Jignanshu Gor:
So, there are two parts to this monetization, right, or three parts rather. There is commissions,
there is ads simplistically and then there is income from consumers or charges. Where do you
think we have the maximum leeway in these three and maybe the lower-hanging fruit as well?
Nandita Sinha:
I spoke about how we are co-creating with our brand partners. And that allows us to build the
base for ensuring that monetization leads this growth. Over a period of time, we will ensure we
will continue to evolve the consumer fees. The two parts that I would really focus on is
monetization. The second thing is how are we evolving the consumer fee structure as we are
evolving the habituated user. Monetization will need it and our co-creation with brands will help
us actually build a more stickier user base, which we can then build habit over a period, which
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allows mix impact to be favourable for us as users become sticky. So this is where we will build
this journey on.
Jignanshu Gor:
I think my second and last question is on Toing. And I think either Harsha or Rohit, I want to
understand what's your framework for deciding, as you said, maybe in the next few quarters,
whether Toing is an experiment, whether it's supposed to be scaled. Like what are the metrics
you're looking for? And what are you willing to compromise on? So is it the growth and the size
of the market that you see which makes you attractive?
Is it consumer behaviour? Is it the unit economics and is there a threshold for that? Are you
willing to accept dilution to the margin profile of the food delivery business when you add the
two businesses together? How are you thinking about your framework for decision-making on
Toing? I think that will be helpful to understand.
Sriharsha Majety:
Harsha here. I think it is not just one thing, it is a set of the few. We've talked about how some
of the early cities are showing what they are in unit economics for repeat users. We would like
to see how that sustains. As we go and expand the user footprint, how does customer acquisition
cost evolve. There are also continuous learnings that we are making in terms of propositions that
can bring delivery costs even lower. And those are things that is some more advertisement push
that will really help us get a more robust sense of the steady-state economics.
Jignanshu Gor:
Okay. So is it fair to say that we have a sort of an answer of what this can lead to, but we just
need a few quarters to get there? Or is it that we are still discovering? So how early are we in
that journey? I think that's the only second thing which would be helpful.
Sriharsha Majety:
As we mentioned, I think at this stage, with the state of the business that is four quarters old,
we're quite happy with the progress that it's made. As Rahul mentioned, majority of the spend is
in marketing user activities, which means it is discretionary.
And we are in a competitive market. We want to really understand more about the stuff that we
are already building conviction on, I'd say because we will know if it can be profitable over the
next few quarters, that we'll get a better sense of the levers that we originally envisaged for the
steady-state economics getting more information on that. Things will be competitive, but we'll
still be able to get a good sense of how the model can work.
Rohit Kapoor:
Adding on to what Harsha said, there is clear evidence in the food delivery we have used in the
past that scale turns into margins and EBITDA over a period of time, and we have demonstrated
that successfully. We see no reason why that same thing will not play out in Toing. Of course,
there's an investment needed to create a business of this size and to push the growth rates from,
let's say, 18-20%, which was envisaged earlier to 25-30% what we have seen.
As we have said even in the shareholders’ letter, we expect the investments will be range bound.
And we'll operate with all three guardrails in terms of building the business. One is, is it opening
up new TAM, which it is at this point in time. Second, is the consumer showing the right amount
of retention frequency, which is there at this point in time.
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And third is shaping the economics towards what becomes a hopefully very profitable business
over a period of time. There will be a bit of a curve for sure. But I think there's nothing that we
see at this point in time, which discourages us from just pushing ahead of this.
Moderator:
Your next question comes from the line of Gaurav Rateria with Morgan Stanley.
Gaurav Rateria:
My first question is on quick commerce. Coming back to the point around quality of growth. So,
there is a lot of goodness that we drove in the business in the form of private brands, in the form
of improving delivery timelines, in the form of fruits and vegetables that you talked about
retention increasing there.
But at the same time, I also saw the pricing intervention that we have done in the business, which
implies NOV to GOV ratio coming down for the current quarter. How to segregate our pickup
of growth between these two factors, one which is inherently structurally positive for us and the
one which is kind of discretionary in nature, which may remain or which may not remain in the
coming quarter?
Nandita Sinha:
Like you pointed out yourself that the quality of growth is looking very, very encouraging. And
the way that we've done it has actually been very focused on the cohorts that we are driving
growth for. We will continue to drive growth to build habit for all of the cohorts. That habit is a
positive move because this takes us into a higher category mix with users, and that helps us in
profitability as we go forward.
The second piece that we know that we will continue to build on is our differentiated assortment
led growth, both on Noice, Nectr as well as the other work that we are doing with brands. Nearly
20% of our orders today are on differentiated assortment. This gives us higher retention. And
therefore, this helps us in our profitability and our Adjusted EBITDA journey.
Lastly, as we build on this journey of ensuring that we build habit, our pod productivity also
goes up. And therefore, the goodness that we have on the other underlying metrics start to show
up for us. So I would say that going deeper into cohorts and building habit with different
categories, building on our category mix by increasing the category penetration and therefore,
compounding that growth and finally, compounding on the differentiated assortment, which
allows us for both retention as well as growth in the future.
All of this results in our pod productivity going up, which ultimately takes us down the Adjusted
EBITDA improvement path. So I think this is where we feel confident on the flywheel that we
are building for ourselves and the green shoots that are coming in terms of both the adoption of
differentiated assortment, Noice and Nectar as well as the retention that we are seeing.
Gaurav Rateria:
Just a follow-up on this. So should we think about these pricing interventions as one of the levers
for driving the habit formation, which effectively will improve retention of the cohorts over
time?
Nandita Sinha:
We are going after very, very focused cohorts, and that's what is helping us improve the
frequency. And we are going after frequency use cases, fresh staples. This is where we are going
after to ensure that we continue to build frequency and retention of these cohorts.
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Gaurav Rateria:
Got it. My second question is on food delivery. Your competition talked about capping the
margins at a certain level and driving incremental investment back in the business to accelerate
the growth. So do you think that strategy could have a rub-off effect on us in our margin
improvement journey and our margin improvement should be largely now a function of the
operating leverage on the overhead cost and less on the contribution margin in future?
Rahul Bothra:
No, I don't think so. As I mentioned previously, our trajectory of like 5% GOV margin continues,
and you have seen some progress already made of 30 bps in the previous quarter. That will be
sequentially achieved. We do not see that we will need to take any pricing actions or reduce our
margin structure here because as we've already pointed out, the affordability play for us is the
Toing vehicle.
And there, again, we have our job set out in terms being able to get more category users and
grow the overall market 25-30% CAGR growth for us overall. On the core business, both the
top line growth of 18-20% as well as the steady state margin of 5% GOV margin stays protected
without us having to go through any dilutive route in the near term.
Gaurav Rateria:
Got it. Last question on Toing. So very clearly articulated on the metrics that you are looking at
to decide on the scalability of the business. But is it also going to be a function of the external
factors, let's say, if the competition decides to completely scale down this and not pursue this, it
will probably not have any impact on our strategy because this is more of a TAM creation that
we are doing rather than any reaction to competition in any case?
Sriharsha Majety:
As I mentioned even earlier, I think there are two sides of the coin. There's a bare minimum,
which is insurance in a market that can expand. But at its best, it is a market that can really grow
and be a sustainable one. So every day we show up, we are actually driving the category forward
and how it can grow and be sustainable.
And if we find out that can't be done and competition is not interested, sure. I mean it can
continue running without investments. But when we wake up, we're hungrily figuring out how
to make this model succeed, how do we think about making it sustainable.
Moderator:
We will take last two questions. Our next question comes from the line of Kunal Vora with BNP
Paribas.
Kunal Vora:
First one, again on Toing. It looks like it's making annualized loss of about INR4 billion, revenue
of INR5 billion. How should we think about the trajectory? Have the losses peaked and at what
level of revenue like something like that breakeven?
Sriharsha Majety:
I think, we already talked about the investments being range bound in the short term. That also
will offer us the opportunity to look into how the platform is working, how leverage comes with
the investments that we're making and the quality of the product market fit. So, in the short term,
as we've mentioned, we continue to iterate the investments, continue to be range bound, but we
do expect growth.
Kunal Vora:
Losses could remain at this level and revenues will continue to scale up. That's the template
which you are looking at ?
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Sriharsha Majety:
That's the template. And it’s also, one of the things that we want to demonstrate for ourselves
and for everyone
Kunal Vora:
Understood. Second one, how should we think about the NOV per store per day in the coming
quarters? There is a 50% gap between Blinkit and Instamart, which is persistent. Like what can
be done to address that? I mean megapod strategy is something which should have helped, but
it has not really narrowed the gap. So like what else can be done?
Nandita Sinha:
We have a double-digit guidance for growth. How we are looking at the growth and as we look
at productivity, part of it will come from our category mix. Part of it will come from our store
productivity going up. Leverage will kick in, and we are not looking at changing any
configuration on how we have opened our stores, etc.
We are looking at increasing the productivity of the store. This allows us to give a higher
category mix to customers as well as it has a double benefit of giving a better category mix to
customers as well as ensuring that we are more productive on these stores. So that's where we
will focus. We are not looking at changing anything around our network.
Rahul Bothra:
It’s a pure math question, right. Because last quarter, we grew 13% and our store network grew
6% so that necessarily adds to NOV per dark store. So we want to maintain a similar trajectory,
and we are not working backwards from a store count addition because it's not going to get us
new distribution. So the efficiency metrics of this will continue to be seen in our performance.
Kunal Vora:
Just one last one. In the shareholders’ letter, you mentioned that competitive intensity in the
sector remains high and you do not expect it to ease in the near term. Like my observation is that
the competition has eased slightly. Minimum order values have moved up, discounting levels
seem to have reduced. Do you agree with this?
Nandita Sinha:
There is high competition in the sector. This is also the quarter of the festive season and there is
festive season that is playing out. And I think it is important to actually look at this as an
expanding market and focus on our own strategy. We are very focused on ensuring that we build
the habit loop with the user and the productivity loop with the pods and continue to build our
differentiation.
This puts us in good stead versus competition because we can see our users retain better on all
of these metrics. We see this as a growing market. There will be competition that is going to
play, and there is a festive quarter which has intense competition, but we will be focused on our
own strategy.
Kunal Vora:
Has the competition eased at all? I mean through the last 6-9 months, or nothing has changed.
Nandita Sinha:
There is some part of some months which are there where we could see some competition easing
off. But I do think that it is very early to call this in, which is whether it has eased out or not. I
think there are new players who have come in.
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Therefore, we will have to continue to focus on our strategy because the volatility around how
competition will react will continue to be there. There may be some addition and some
calibration on some ends, but overall, there will be competition.
Sriharsha Majety:
Building on what Nandita here. The next milestone for us is to get to that profitability at an
Adjusted EBITDA level and demonstrate that. Even in a competitive market, which is
competitive, we want to focus on the strategy that we've picked up, pick up the basics, serve
consumers every day in an even better way, get the right kind of consumers and differentiate to
be able to get closer and closer to that.
That is our guiding light as we make decisions every passing quarter. Are we making the
business stronger and closer to the ambition by building resilience in the business and resilience
in the business will have to come from doing some things greatly and some things differently,
again, in a market of seven players.
I know there are various versions saying, should you do Noice, should you do something. I think
that if everyone is going to do exactly the same things because they have good ideas, that's also
not the sure shot part to Adjusted EBITDA zero. When you find success in a few shoots, which
are harder to replicate for other competitors, I do think it's responsible for us to double down and
find even more differentiation because that is the road to resilience in users sticking for a longer
while the incentives are outside, and that is what will help us get closer to managing the growth
and Adjusted EBITDA profile of the business over the next few years.
Moderator:
Your next question comes from the line of Aditya Soman with CLSA.
Aditya Soman:
So, I mean a more fundamental question, Harsha. So just if I take a step back, compared to
Eternal which is valued at more than five times what Swiggy is for a business that is largely
similar, the gap in every metric I see is widening. Even at a store level, say, if I look at something
like Instamart, even at a store level, orders per store for Blinkit grew 7% and yet profitability
has improved.
This is despite them adding new cities, which could be less profitable. So, I think, the market is
attributing a different expectation of execution from Eternal and from Swiggy.
Now one can say that you just look at your own path and not look at theirs, which is fair. But
from a Swiggy perspective, for this market perception of a gap in execution to change, one needs
to see this gap narrow. With you sitting on cash, why not look at expanding new cities given that
two of the other players are already around similar number of stores, there's another player that's
catching up on the number of stores.
Would it not mean that if you all focus on the same cities, I understand a different strategy again
on assortment, but we are talking only about 1 in 8 orders having these SKUs. And even that 2
to 3 items per order somewhere around 16 to 24 being Noice. How will that change the story
long term?
Sriharsha Majety:
Thanks for asking that, Aditya. I think firstly, I think our competitor, Blinkit enjoys a pretty
strong flywheel that has been compounding over the years. That is the reason why we've been
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able to build a resilient business. For us, the next step is actually going to build that more resilient
business before just using cash because it exists in the bank to set up new flanks.
As I mentioned even in the previous answer, our first job is to build a stable, resilient business
that has clear line of sight to Adjusted EBITDA zero and the optionality's come after that. And
the most important thing for us to build that, again, to make the business resilient. And for that,
we need to do 3-4 things that Nandita talked about already.
Anything straight from that is the opportunity, potential lost opportunity, but we think that not
not making the business resilient in the areas where we are will be a bigger lost opportunity
because we still need to grow. As we mentioned, we need to get to roughly 2x the current size.
We need to improve the contribution. To be able to do this is the most important thing for us.
As the market evolves, I'm sure we'll find newer and newer ways to grow the market even more
than we are able to in the very short term. But I think it's just to prove that execution, to prove
that focus, we need to double down on the specific areas as of now.
Aditya Soman:
Understand. And maybe just to drill a little bit more. So in this quarter, for example, we've seen
gross margins maybe reduced by about 110 bps or so or 120 bps quarter-on-quarter. Now with
the reduction in gross margins with more private label, we should, in theory, see an acceleration
in growth. But why is that missing at, let's say, growth at a store level. If we think of orders per
store, we have only a slight improvement.
Rahul Bothra:
Orders per day per store have actually gone up by close to 9%. If you look at even the average
NOV per store has gone up by 9% sequentially.
Aditya Soman:
I thought it's closer to sort of 6-7%.
Rahul Bothra:
Yes, we're close to 1,200 orders per day per store. This is the best we have ever seen. And as I
said, you will continue to see traction on this line, which is an important metric for also store
level profitability as well as overall platform level Adjusted EBITDA profitability.
Aditya Soman:
Understand. And so, the thought process right now is that the lost gross margin gets made up in
leverage as you leverage these stores as the frequency continues to improve on these stores?
Rahul Bothra:
Yes, so scale gets along its own operating leverage. Even in the previous quarter, we added 60
bps. Some of it got reinvested getting back into the healthy growth. I think that's discretionary
in spending, and we will take an appropriate time when we will start harvesting that back again.
But the operating leverage as long as the growth continues is going to get delivered.
Moderator:
Thank you very much, ladies and gentlemen. That will be the last question. On behalf of Swiggy
Limited, that concludes this conference. Thank you for joining us, and you may now disconnect
your lines. Thank you.
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