Swiggy shares are trading at 35 per cent discount to Zomato valuations, which provides some downside protection, HSBC said. The foreign brokerage, however, prefers to stick with leader Zomato due to competitive nature of the industry.
If Swiggy Ltd were to improve its relative execution, the stock upside could be strong, led by both growth and valuation re-ratings (closer to Zomato), but the probability of this scenario is low, HSBC said. Catching up on both growth and profitability can be challenging, it added.
Swiggy shares rose for the eighth straight session on Thursday, trading 1.59 per cent higher at Rs 548.20 on BSE. HSBC has initiated coverage on Swiggy with a 'Hold' rating and a target price of Rs 550, implying 6 per cent upside over Thursday's closing price. This is the same target that JM Financial suggested for Swiggy recently.
HDFC Institutional Equities (HSEI) suggested a 12-month target price of Rs 470 on Swiggy. MOFSL suggested a target of Rs 475 on the stock.
In the food delivery (FD) segment, HSBC believes the duopoly between Swiggy and Zomato will continue and both companies now have a predictable path to steady state operations (4-6 per cent margins).
In the quick commerce (QC) business, while Swiggy Instamart's expansion targets are now matching pace with the competition, HSBC believes the increased competitive intensity holds downside risks to the company's targeted timelines to double store count and for contribution and Ebitda margin to break even.
"Over FY24-27e, we expect Swiggy's FD business to grow at a CAGR of 16 per cent, and 65 per cent for QC; we do not forecast Ebitda breakeven for the overall business before FY28. Our overall valuation for Swiggy is $16 billion - FD and QC businesses at $5 billion and $10 billion plus $1.3 billion of cash, investment and other businesses," it said.
HSBC said Swiggy is a pioneer in the food delivery (FD) and quick commerce (QC) industries in India. But the company has faced stiff competition from Zomato in FD and Blinkit plus Zepto in QC in the past 3-4 years and hasn't been able to maintain its early mover advantage.
"In 1H25, Swiggy was 75 per cent of Zomato in FD and 55 per cent of Blinkit (owned by Zomato) in QC in terms of gross order value (GOV). Profitability is also lagging in both businesses," it said.