Shares of Swiggy Ltd climbed 3 per cent in Monday's trade after a Business Today report suggested that a GST clarification on input tax credit for Electronic Commerce Operators (ECOs) such as Swiggy Ltd and Zomato Ltd are likely soon. The stock also gained as Axis Securities initiated coverage on the Swiggy stock with a 'Buy' rating and a target price of Rs 640, saying it finds a 27 per cent valuation discount to peer Zomato Ltd justified.
Swiggy shares rose 2.88 per cent to hit a high of Rs 547.35. The Zomato stock was up 0.76 per cent at Rs 290.60.
"Swiggy presents a compelling investment opportunity to gain exposure to e-com in India, as the second-largest q-com and food-delivery player. We initiate with a BUY rating and an SoTP-based target price of Rs 640. Our price target implies a March 2027E EV/sales of 5.3 times, which is at 27 per cent discount to Zomato’s consolidated EV/sales of 7.2 times. The discount is justified, in our view, given Swiggy’s smaller scale and delayed profitability," it said.
Axis Securities said its 'Buy rating on Swiggy is based on the fact that Swiggy’s key segments food delivery and quick commerce (q-com) remain relatively underpenetrated and have a long runway of growth.
Also, Swiggy Instamart, its q-com business, has set ambitious targets for footprint expansion, which should help it meaningfully accelerate gross order vale (GOV) and top line growth. Swiggy is also seeing improving cost-control.
Besides, Food delivery, being a duopoly India, should see healthy growth with improving profitability through operating leverage, Axis Securities said.
"Recent onboarding of industry veterans from retail and e-com, especially in q-com, should aid further improvement of business performance. Swiggy also has the propensity to innovate. The ‘ideator’ persona with improving execution should help it remain one of the leaders across its operating segments," Axis Securities said. Axis Securities said Swiggy has been a good ideator, among the first in food delivery and quick commerce spaces. Bu it ceded leadership to Zomato, which could be due to the latter’s superior execution.
"Swiggy has restructured its organization over the past few years, shifting from a pre-dominantly founder-led to a professionally led model. Its propensity to innovate and strengthened management team should help it remain one of the leaders in its business segments," Axis Securities said.
Axis Securities noted that Zomato is ahead of Swiggy across most operational parameters including MTUs, orders, stores and restaurants,. It said Zomato's Blinkit is larger and growing faster than Swiggy's Instamart due to deeper penetration and faster dark store expansion. Also, Zomato's aeverage order value (AOV) is higher due to wider assortment and premiumisation, In the food delivery space, Swiggy has higher take rate but lags in MTUs/ orders likely on Zomato’s better reach, Axis Securities said.
The broking firm said Swiggy’s unified offering is yet to witness cross-selling benefits beyond slightly better order frequency. Zomato’s faster growth is coming with increasing profitability and showing better cost control (fixed and variable), it said.
That said while Swiggy lags Zomato, there has been some directional improvement in Swiggy’s profitability, as the gap with its peer is narrowing with some quick fixes, primarily in cost optimisation. Swiggy might not be able to match Zomato’s scale, but it is likely to cover the profitability gap, Axis Securities said.
"Targeting fast dark store expansion for its q-com business, optimizing delivery costs, improving commissions and ad revenues through better negotiations with brands, and pivoting the organization structure from a pre-dominantly founder-led business to a professional-led business, are some key pointers which would improve the business," it said.