Swiggy, the Indian food delivery and grocery delivery giant, is setting its sights on profitability for its grocery delivery arm, Swiggy Instamart. This strategic move comes as the company pushes forward with plans for a potential initial public offering (IPO), targeting a listing in August-September 2024.

According to sources familiar with Swiggy’s plans, the July-September quarter has seen significant improvements in Instamart’s economics, particularly in terms of consumer acquisition cost and repeat purchases. Encouraged by these developments, the company has set an internal goal to achieve profitability for Instamart by March-April 2024.

While Swiggy’s food delivery business has already demonstrated profitability, the company’s foray into the competitive quick commerce (q-commerce) sector, which focuses on rapid grocery and essential item deliveries, has involved substantial investment. The move to make Instamart profitable is seen as a critical step in Swiggy’s overall strategy.

“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,” commented one source.

Swiggy’s losses reportedly increased by 80% to $545 million in FY23, primarily due to investments in its grocery business. In contrast, the company’s earnings reached around $900 million during the same fiscal year. In FY22, Instamart contributed Rs 2,036 crore in revenue to Swiggy’s total income of Rs 5,705 crore.

Swiggy is currently in discussions with financial institutions, including JP Morgan, Morgan Stanley, and Bank of America, to prepare for its upcoming IPO, scheduled for next month, as reported by Reuters.

While Swiggy has not officially disclosed its valuation plans, industry sources suggest that it aims to secure a valuation not lower than $11 billion. In its last funding round in February 2022, Swiggy was valued at $10.7 billion when it raised $700 million.

The move towards profitability in the q-commerce sector signifies Swiggy’s confidence in its ability to retain and satisfy its current customer base. It also indicates a shift away from aggressive user acquisition strategies, which typically involve high marketing and operational costs.

Swiggy’s potential IPO in FY25 aligns with its strategy to balance growth momentum with the quest for profitability, ensuring that rapid expansion does not compromise its valuation in the long run.

While the path to profitability in the competitive q-commerce space is challenging, Swiggy’s position in the market and strong financial backing provide it with the option to consider an IPO as it continues to navigate the evolving landscape of food and grocery delivery.