Why Zomato will have an edge over IPO bound Swiggy? Brokerages decode

Domestic brokerage JM Financial believes that Zomato Ltd will be well ahead of Swiggy, despite the improved profitability of its IPO-bound food delivery aggregator. Swiggy's growth is impressive but Zomato is ahead from its peer on a relative basis, it said. Another brokerage firm CLSA also penciled out that Zomato growing faster than Swiggy, which places.

Swiggy’s B2C gross order value (GoV), expanded 26 per cent YoY in CY23 as per the annual report for FY24 by Prosus, its largest shareholder which owns 32.6 per stake, ex ESOPs, said JM. However, it lagged Zomato’s corresponding GoV of 36 per cent during the same period. Zomato outperformed Swiggy in each of the three comparable B2C businesses in CY23, it said.

For the quarter ended March 31, 2024, Zomato reported a consolidated total revenue of Rs 3,797 crore, up 70.54 per cent YoY. The food delivery platform reported net profit after tax of Rs 175 crore in the January-March quarter, compared to a net loss of Rs 188 crore in the year-long period.

JM also said the Swiggy is still a not a profit-making entity, despite halving the losses. On the other hand, Zomato has turned profitable. Swiggy's adjusted Ebitda losses stood at Rs 2,200 crore in CY23, which were Rs 4,300 crore in CY22, aided by strong operating leverage in food delivery business and improvement in unit economics of quick commerce business.

Growth was led by the quick-commerce business, with the core food delivery business growing in double digits. Consolidated revenue, includes B2C and B2B businesses, during this period grew a decent 24 per cent YoY to Rs 10,200 crore. On an absolute basis Swiggy’s numbers were impressive, on a relative basis it lagged Zomato both in terms of growth and profitability, it said.

"While Swiggy has confidentially filed its pre-DRHP, we believe a successful public listing largely hinges on the management’s ability to demonstrate a clear path to Adjusted Ebitda break-even at a consolidated level and arrest market share losses in food delivery as well as quick commerce businesses," said JM Financial.

Swiggy had 387,000 active delivery partners with Swiggy Instamart having 487 active dark stores. In comparison, Zomato had 418,000 delivery partners with 526 dark stores for Blinkit. JM Financial has buy call on Zomato with a target price of Rs 250.

Risks include subdued urban consumer sentiment hindering growth, highly competitive intensity, and regulatory strictness. Significant consumer adoption of the ONDC network could have some negative impact on take rates, which is also a key risk, said CLSA in its note with a target price of Rs 248 apiece and a 'buy' rating for Zomato.

Earlier this week, another global brokerage Morgan Stanley retained its ‘overweight’ rating on Zomato with a target of Rs 235. Morgan Stanley said there is a probability that the competitive intensity may increase in the segment over the near term with Zepto raising funding.