Despite Swiggy reporting better-than-expected first quarter earnings and sharply narrowing losses, domestic brokerage JM Financial turned more cautious, downgrading the stock to Sell from Reduce.With a target price of Rs 250 per share, analysts forecast over 15% downside from current market levels. The contrarian view comes after a host of international and Indian brokerages issued bullish calls on the counter following the Q1 print. JM Financial says Swiggy's Q1FY27 results reinforce its view that meaningful profitability improvement in the Instamart business will require greater scale. The brokerage noted that after prioritising contribution margins over the past few quarters, the company has shifted its focus back to accelerating growth. It highlighted that Instamart's contribution margin was only marginally above break-even in Q1 despite muted quarter-on-quarter NOV growth and expects the metric to remain in negative territory, between 0 and -100 basis points, over the next two quarters. Profitability takes back seatAccording to the brokerage, Swiggy has once again shifted its Instamart strategy from improving profitability to accelerating growth after nearly reaching contribution-level break even. It says the management now aims to deliver at least double digit sequential NOV growth in Q2FY27 while operating within a 0% to -1% contribution margin range, indicating that elevated investments will continue and adjusted EBITDA losses are likely to remain in the Rs 750-800 crore range in the near term.Also read: Swiggy shares plunge 6% even as losses narrow. Should investors buy, sell or accumulate?Cannibalisation in food deliveryWhile management reiterated its 18–20% medium-term growth guidance, Q1FY27 marked the first quarter in recent periods where growth disappointed. More importantly, management disclosed that nearly one-third of Toing users overlap with Swiggy’s core food-delivery users, indicating some degree of order cannibalisation. “Although management views Toing as serving a differentiated value segment, we believe its expansion could weigh on the core platform’s growth in the near term. We also remain concerned about cost attribution between the core FD and Toing businesses, given that there could be an overlap in restaurant as well as rider partners,” JM Financial said in a note. Rising investments, limited visibilitySwiggy's Platform Innovations business, which includes Toing, Crew and other experimental ventures, continued to see higher investments with limited earnings visibility. Segment revenue increased to Rs 51 crore in Q1FY27 from Rs 11 crore in the previous quarter, while the adjusted EBITDA loss widened sharply to Rs 130 crore from Rs 58 crore in Q4FY26. Management attributed the higher losses to residual costs related to the closure of Snacc and increased marketing spends to scale newer initiatives, particularly Toing.Also read:Company in a strong position, competition poses no threat to growth: SwiggyWhile Swiggy said fresh capital would be deployed only after achieving product-market fit and proving business viability, JM Financial believes the sharp rise in losses and customer overlap with the core food delivery business raise concerns over capital allocation and the long-term value creation potential of these ventures.Swiggy Q1 resultsThe company reported a consolidated net loss of Rs 791 crore for the first quarter of FY27, marking nearly a 34% year-on-year decrease from the Rs 1,197 crore net loss reported in the year-ago period.The company’s revenue from operations, meanwhile, increased more than 37% YoY to Rs 6,812 crore during the April-June quarter of FY27, from Rs 4,961 crore reported in the corresponding quarter of the previous financial year.Instamart, the company’s quick commerce arm, also saw losses contract to Rs 651 crore in Q1 FY27 from Rs 797 crore in the year-ago period. Its revenue from operations meanwhile soared nearly 53% YoY to Rs 1,232 crore. Instamart’s GOV rose nearly 40% YoY to Rs 7,907 crore, while contribution margin improved 440 bps to 0.2%. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)