ICICI Securities in its latest note on online food aggregators said the concerns regarding the competition in the quick commerce (QC) segment is overbaked, and that the market is ignoring positives in the food delivery segments. Following up to 45 per cent slide in shares of Swiggy Ltd and Zomato Ltd, the brokerage suggested 'Buy' ratings on both the stocks.
Swiggy and Zomato have corrected 45 per cent and 30 per cent, respectively, in the last three months. The concerns around increasing cash burns in QC was mostly on account of higher discounting by Zepto, as it was looking to increase market share post accelerated store expansion, said ICICI Securities.
"We think these concerns have been over-baked into the stock prices for both Swiggy and Zomato," the brokerage said.
It noted that Swiggy (consolidated) is now trading at a 30 per cent discount to par value for the food delivery business, implying negative value for the optionality of success in QC. Zomato, on the other hand, is trading at a value that ascribes nothing to QC, it said.
"We think this anomaly is unlikely to sustain long, especially given a robust outlook for discretionary consumption from May 2025. We therefore re-iterate Buy on both," it said.
ICICI Securities said the food delivery business is being ignored by investors in the panic over quick commerce. Food delivery has continued to scale profitably over the last 2 years and while there was some slowdown in growth in Q3FY25, ICICI Securities dos not see any reason to be worried about structural growth drivers in the space.
"Our analysis suggests that there was a noticeable increase in consumption in FY06, FY11, FY13 and FY14, the last 4 occasions when there were meaningful tax cuts. Therefore, we believe that the income tax cuts announced in the union budget for FY26, are likely to trigger strong consumption growth among middle class consumers," it said.
Given the discretionary and celebratory nature of food delivery, ICICI Securities thinks the sector could be the key beneficiary as consumers start seeing higher disposable incomes from May 2025.
The brokerage, on the other hand, said the valuation for quick commerce business is also compelling for investors with an investment horizon of over one year, despite lack of visibility on contribution margin improvement in the near term. ICICI Securities said its channel checks reveal that there has been a noticeable pull back in performance marketing spends from the quick commerce platforms that should yield some improvement in contribution to Ebitda conversion.
"We think the recent market correction has clearly conveyed investor preference for sustainable growth. Therefore, red ocean strategies are unlikely to be sustained given that would erode valuation for the space overall and make it very difficult to raise fresh funds for incumbents to sustain the burn rates," ICICI Securities said.
For Swiggy, it suggested a target price of Rs 740. Zomato attracted a target price of Rs 310.