1 week ago
Before Swiggy Ltd. was listed on the stock exchanges today, November 13, global brokerage firm Macquarie initiated coverage on the stock with an 'underperform' rating, and a price target of ₹325 per share.
This target suggests a potential downside of around 17% from Swiggy's issue price.
The foreign brokerage believes that Swiggy has a significant growth runway ahead, though its journey to profitability may be challenging and uneven.
As India's second-largest consumer app in food delivery, quick commerce, and out-of-home services, Swiggy has a clear opportunity to narrow the gap with leader Zomato.
However, Macquarie mentioned that quick commerce, is more complex, with no clear path to sustainable profits.
The brokerage expects Swiggy to achieve EBIT breakeven by FY28, assuming a 23% compound annual growth rate in core revenue.
Swiggy's contribution margin is nearly comparable to Zomato's, but its adjusted EBITDA margin lags due to a smaller gross order value, which limits its ability to absorb central branding and employee expenses.
Macquarie believes Swiggy can close this profitability gap by increasing its transacting users by 30%.
On the flip side, JM Financial initiated coverage on Swiggy with a price target of ₹470, which suggests a potential upside of 20% from its issue price.
The brokerage wrote in its note that Swiggy continues to be one of the leading hyperlocal delivery platforms in India, bettered only by Zomato.
Despite having ceded some space to competition, JM Financial believes Swiggy is one of the fastest growing consumption plays with multiple levers to move towards sustainable margins.
However, JM Financial choses Zomato over Swiggy as even though Swiggy offers decent upside on an absolute basis, Zomato is preferred only due to its superior execution in the past and market leadership across key segments.
The brokerage though, advises investors to play both, with preferably a higher weightage to Zomato as both continue to remain the fastest growing consumption names and could outperform market returns.
Shares of Swiggy Ltd. were listed on the exchanges on November 13, after the issue was subscribed 3.59 times in the primary market. The issue had a price band of ₹371-390 per share.
Founded in 2014, Swiggy partners with more than 200,000 restaurants across India to deliver food in the world’s most populous nation, as per its website. Its rivals include Zomato Ltd., e-commerce giant Amazon.com Inc.’s India unit and conglomerate Tata Group’s BigBasket in the country’s fast-growing quick commerce sector.
Swiggy primarily operates in a B2C marketplace platform where it aggregates restaurant & merchant partners that can list their food & products, while users can discover and purchase such items. The company facilitates the fulfilment of these orders by enabling delivery, reservations, payments, and lead generation for partners.
Swiggy posted a net loss of ₹611.101 crore, and a revenue of ₹3,310.11 crore for the June 2024 quarter. The company reported a net loss of ₹2,350.24 crore and a revenue of ₹11,634.35 crore for the financial year ended on March 31, 2024.
