UBS sees quick commerce recovery as margins stabilise and reach expands

UBS Investment Bank has a bullish stance on internet and quick commerce stocks, particularly Swiggy and Zomato, issuing a buy recommendation for both.

Navin Killa, Head of APAC Telecommunications, Media & Internet at UBS Investment Bank, pointed to two key factors driving this positive outlook.

First, he highlighted the rapid expansion of the quick commerce market, which is growing at an annual rate of around 100%. The definition of quick commerce itself is evolving.

Previously limited to about 30 cities, mainly focused on grocery deliveries within 15 minutes, the sector has now broadened significantly. It has expanded to nearly 100 cities, includes a wider range of product categories, and offers delivery windows of 30 to 45 minutes. This shift significantly enlarges the total addressable market.

Second, Killa addressed concerns about profitability and margin pressures in the sector. He identified two main contributors to recent losses: rising marketing expenses and the rapid expansion of dark stores. While marketing costs appear to be stabilising, the aggressive rollout of dark stores—each taking three to six months to break even—has created short-term margin pressure.

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However, with the pace of expansion beginning to level off and a larger network already established, UBS Investment Bank believes that the sector is nearing the bottom of its margin trajectory. This forms the basis of their positive view on the space.

When asked whether satellite communication poses a threat or an opportunity for incumbent telecom players in India, Killa stated that the technology is evolving so quickly that it's difficult to predict how the landscape will look even a couple of years from now.

However, he noted that one constant is the significantly higher cost per GB for satellite connectivity compared to traditional mobile broadband. In a price-sensitive market like India, this cost disparity is expected to limit widespread adoption.

Killa pointed out that telecom companies are increasingly forming partnerships with satellite operators rather than facing direct competition from them. This trend suggests that telcos see satellite communication as a complementary service—particularly useful in areas where traditional networks do not reach.

It offers a way to extend coverage to the remaining 5–10% of the population without incurring heavy capital expenditure for remote infrastructure. While revenue-sharing with companies like SpaceX may be necessary, the potential to monetise previously unreachable segments and offer improved service quality could outweigh the costs.

As things stand, Killa views satellite communication as an incremental positive for telecom operators. However, if technological advancements bring the cost of satellite data closer to that of mobile broadband, the implications for the sector could shift dramatically.

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