Swiggy IPO: Zomato shares are up 121 per cent in 2024 so far, ahead of the mega initial public offer (IPO) by peer Swiggy. Following its comparison with the IPO-bound Swiggy, based on the draft IPO papers, MOFSL believes Zomato Ltd has further room for upside.
The stock has potential to deliver over 20 per cent return going ahead, the brokerage said citing Zomato's market leadership in food delivery and quick commerce -- the two key battleground areas for the players.
"While Zomato is undeniably Primus inter pares, the war for the wallet share of the urban affluent consumer has just begun, and it is too early to call the game," it said.
Comparing Swiggy and Zomato, MOFSL said Zomato has been gaining market share in food delivery. But, on the basis of gross order value and monthly transacting users (MTU), Swiggy’s cohorts appear more mature and stickier.
"In quick commerce, despite Swiggy’s Instamart inventing the category, Blinkit has taken an early lead and Zepto continues to execute well. However, the market is nascent, and enough avenues exist to differentiate on SKUs and strategy, making it too early to declare winners (or losers)," MOFSL said.
The domestic brokerage said Swiggy’s approach of an integrated app offering against Zomato’s multi-app approach helps it innovate faster.
Swiggy could again be at the forefront of food delivery innovation through Bolt, its 10-minute food delivery platform, it added.
Among key comparisons, MOFSL said Swiggy’s take rates are ahead of Zomato’s, indicating better monetisation of its platform. That said, it expects the take rates to converge, as Zomato continues to dominate the market.
"Zomato outperforms in terms of average MTU, with 20 million vs Swiggy's 14 million. While Swiggy has 6 per cent higher GOV per MTU, primarily driven by higher order frequency, both platforms have similar average order values," it noted.
Zomato, MOFSL said, is leading not only in GOV and market share but also in profitability. Zomato’s food delivery business has become stable, showing consistent GOV growth and predictable profitability with Ebitda margin of 3.4 per cent, it said.
"In contrast, Swiggy’s food delivery business has just broken even, with a lower Ebitda margin of 0.8 per cent," it said.
MOFSL said Zomato acquired Blinkit to strengthen its instant grocery delivery segment while Swiggy launched Instamart for grocery delivery, which has grown to become a significant revenue driver. A slower expansion compared to peers means Swiggy is losing some market share to Blinkit as well as Zepto, MOFSL said.
Net-net, MOFSL believes Zomato's food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce. Its estimates imply FY24-27 revenue CAGR of 55 per cent for Zomato and PAT margin of 4.3 per cent in FY25, 8.7 per cent in FY26 and 13.2 per cent in FY27.
"We value the business using a DCF methodology, assuming 12.5 per cent cost of capital. Our DCF-based valuation of Rs 320 suggests a 21 per cent upside from the current price. We reiterate our BUY rating on the stock," it said.