Shares of Swiggy Ltd surged by 3% on Monday, reaching ₹547.35 after positive news surrounding a possible GST clarification for Electronic Commerce Operators (ECOs). Analysts from Axis Securities initiated coverage on Swiggy with a ‘Buy’ rating and a target price of ₹640, citing a long runway for growth in food delivery and quick commerce (q-com). Here’s why Swiggy is seen as a compelling investment opportunity and how it compares to its primary competitor, Zomato.
5 Reasons to Buy Swiggy Shares
- Underpenetrated Key Segments:
- Swiggy operates in food delivery and quick commerce, two segments with significant growth potential.
- As India’s second-largest player in q-com and food delivery, Swiggy stands to benefit from increasing consumer adoption.
- Ambitious Growth Plans for Instamart:
- Swiggy’s Instamart is targeting rapid expansion, which could drive higher Gross Order Value (GOV) and top-line growth.
- The focus on dark store expansion is expected to enhance Swiggy’s q-com footprint.
- Cost Control and Profitability:
- Swiggy has shown directional improvements in profitability through cost optimization and operational efficiency.
- While it lags Zomato in some operational metrics, the profitability gap is narrowing.
- Innovation and Leadership:
- Swiggy is recognized as an ideator, being among the first movers in food delivery and q-com.
- The recent restructuring to a professional-led model and onboarding of industry veterans has strengthened its execution capabilities.
- Valuation Discount vs. Zomato:
- Swiggy trades at a 27% discount to Zomato based on EV/sales metrics, which Axis Securities believes is justified but offers upside potential.
Swiggy vs. Zomato: A Comparative Analysis
| Metric | Swiggy | Zomato |
|---|---|---|
| Market Position | 2nd in food delivery and q-com | Market leader |
| Take Rate | Higher | Slightly lower |
| MTUs/Orders | Lower due to lesser reach | Higher with deeper penetration |
| Dark Store Expansion | Targeting fast growth | Growing faster with Blinkit |
| Profitability | Improving | Better cost control and profitability |
Analyst Insights and Price Targets
| Brokerage | Rating | Target Price (₹) | Key Insights |
|---|---|---|---|
| Axis Securities | Buy | ₹640 | Growth in q-com and food delivery; improved cost control and execution. |
| CLSA | Positive | Not disclosed | Sees ample opportunity for both Swiggy and Zomato in the market. |
Why Swiggy Lags Behind Zomato
- Operational Metrics:
- Zomato leads in MTUs, order volume, and premiumization, giving it a competitive edge.
- Zomato’s Blinkit is larger and growing faster than Swiggy Instamart.
- Cost Efficiency:
- Zomato demonstrates superior cost control and cross-selling benefits.
- Swiggy’s unified offering hasn’t fully capitalized on cross-selling yet.
- Profitability Gap:
- While Swiggy is narrowing its profitability gap with Zomato, it still has a way to go before matching its scale.
Key Growth Drivers for Swiggy
- Quick Commerce Expansion:
- Dark store expansion is expected to accelerate q-com growth.
- Improved Negotiations:
- Better brand negotiations could enhance commission and ad revenues.
- Professional-Led Model:
- The transition from a founder-led to a professional-led model ensures better governance and execution.
Conclusion
Swiggy’s recent rally reflects its growing potential in the food delivery and quick commerce sectors, despite lagging behind Zomato in some key areas. Analysts believe that with improving profitability, ambitious expansion plans, and a valuation discount, Swiggy represents a compelling buy for long-term investors.
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Disclaimer
This article is for informational purposes only and does not constitute financial advice. Please consult a financial advisor before making investment decisions.
