Swiggy shares up 5% as Kotak initiates 'Buy' on stock; here's target price 

Shares of Swiggy Ltd climbed 5 per cent in Monday's trade, as Kotak Institutional Equities initiated coverage on the stock with a 'Buy' rating and suggested a fair value of Rs 500 on the stock. Following the report, the Zomato Ltd peer rose 5.3 per cent to hit a high of Rs 458.50 on BSE.

Kotak's valuation of Rs 84,000 crore for the food delivery business implies 51 times FY2027 EV/Ebitda, while its valuation of Rs 34,400 crore for the quick commerce business imputes FY2027E EV/sales of 0.8 times. Urban demand slowdown, higher competitive intensity, especially for the quick commerce business, and negative regulatory developments are key risks to Swiggy, the brokerage said.

"We model a steady 19 per cent GMV CAGR for the food delivery business and a higher 63 per cent GMV CAGR for QC over FY2025-28E. We believe that food delivery margin improvement will drive a 62 per cent adjusted Ebitda CAGR for the segment over FY2025-28E, although quick commerce will entail investments to support infrastructure growth and customer acquisition. We initiate coverage with a BUY rating and an SoTP-based fair value of Rs 500," it said.

Kotak is expecting Swiggy’s quick commerce business to post a rapid 63 per cent GMV CAGR and 74 per cent revenue CAGR over FY2025-28. The company recently accelerated its store addition target to 1,000 by March 2025, which can drive a healthy near-term revenue CAGR. This will, however, entail higher near-term investments, and Kotak expects the Ebitda loss to peak in FY2026, with full-year positive Ebitda only by FY2028.

"We expect Swiggy’s food delivery business to post GMV CAGR of 18.7 per cent over FY2025-28, driven by 15.5 per cent CAGR in orders and 2.8 per cent CAGR in AOV. Revenue CAGR of 19.1 per cent is higher on account of take-rate increase, driven by higher ad revenues and platform fees. We model a contribution margin (CM) of 8.3 per cent and an Ebitda margin of 4.5 per cent as a percentage of GMV by FY2028E," Kotak said.

This would be lower than the 5.4 per cent Ebitda margin for Zomato in FY2028, Kotak said. It, however, sees a lower differential in the medium term.

"Longer term, we remain sanguine on the prospects of the food delivery business and expect Swiggy to benefit from a largely duopolistic, stable market," Kotak said.