Swiggy vs Zomato: CLSA says market too big, enough opportunity for recent stock debutant

CLSA on Tuesday initiated coverage on the recent stock debutant Swiggy Ltd with an 'Outperform' rating, saying the markets for food delivery (FD) and quick commerce (QC) are too big for a single player. While stock investors may naturally compare Swiggy with Zomato Ltd, which is a very similar business, CLSA said it sees enough opportunity for Swiggy to thrive not only in both of its key categories, but also in newer categories.

The foreign brokerage said it expects Swiggy to lag Zomato in a few parameters, but added that the valuation discount is adequately reflecting the reality.

Swiggy had an early mover but it has been overtaken by Zomato in both food delivery and quick commerce on gross order value basis (GOV) and transacting customers.

"Swiggy is one of India's most Innovative companies and an early mover in food delivery and quick commerce in the country. We think Swiggy has significant growth potential as it addresses a very large TAM for food delivery and quick commerce. We also see Swiggy's execution improving with accelerating growth and improving profitability," CLSA said.

Swiggy was listed on stock exchanges on November 13, 2024.

The brokerage said Indian quick commerce sector may grow 6 times over FY24-27 and expects Swiggy to be one of the largest beneficiaries. Swiggy will likely continue to lag Zomato, but CLSA believes this gap is in the price, it said.

"We initiate coverage with an Outperform rating and Rs 708 target price, implying 32 per cent upside potential," it said.

Last week, HSBC initiated coverage on Swiggy with 'Hold' rating, This brokerage said Swiggy shares are trading at 35 per cent discount to Zomato valuations, which provides some downside protection. HSBC, however, preferred to stick with leader Zomato due to competitive nature of the industry.

"We estimate food delivery and quick commerce will have aFY27 TAM of $16 billion and $27 billion. With food delivery being a two-player market and quick commerce likely dominated by three players, Swiggy has large headroom for growth in both categories, which had a combined total gross order value (GOV) of $7 billion in FY24," CLSA said.
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.