Zomato vs Swiggy: What Nuvama says on these two online food aggregators

Nuvama Institutional Equities in its latest report compared listed online food aggregator Zomato with its unlisted peer Swiggy after the latter recently reported its FY22 financial results. While Swiggy’s revenue surged 124 per cent YoY for the year, its cash burn tripled to Rs 3,100 crore, driven by a fourfold jump in raw material and advertising spends, Nuvama highlighted.

The domestic brokerage said that both players are slugging it out for a bigger pie of the food and grocery delivery space, but Zomato is gradually gaining higher market share.

Results released by Prosus, Nuvama said, show that the gross order value (GOV) of Swiggy’s food delivery and quick commerce in the first half of Calendar 2022 stood at $1.3 billion while it stood at $1.6 billion for Zomato and $275 million for Blinkit. That, it said, is  a good delivery so far, but the space is dynamic and the order might change.

Cash burn

In their quest to grab market share, said Nuvama, Zomato and Swiggy have been burning cash and clocking strong growth. While Swiggy burnt Rs 10,300 crore over FY19–22, Zomato has fared better with controlled cash burn of Rs 5,650 crore.

"We reckon that the Blinkit acquisition would further add to Zomato’s cash burn. However, a massive 1,000 bps QoQ improvement in Blinkit’s contribution margin and profitability in the food delivery business has been encouraging. While a healthy balance of growth and profitability is on investor radar, slower growth has also been a dampener as witnessed in Zomato’s Q2FY23 results," it said.

Nuvama said a strong growth coupled with consistent improvements in profitability would be the perfect recipe for success for these food delivery companies.

GOV comparison

Zomato’s GOV increased 100 per cent compounded annually over FY18-22 while that of Swiggy’s GOV at 83 per cent over the same period.  "Clearly, Zomato outperformed Swiggy on GOV growth despite Swiggy’s acquisition of Supr Daily in FY19 and launch of Instamart during FY21. Zomato increased its GOV market share from 47 per cent in FY18 to 55 per cent in FY22," it said.

Revenue growth

While Zomato outperformed at GOV level, Swiggy clocked total revenue CAGR of 92 per cent over FY18–22 against Zomato’s 73 per cent due to a difference in accounting policies.

Food delivery contributed the bulk of revenue for both players, Nuvama noted. But both had a different business mix: Zomato due to Hyperpure (supplier to restaurants) and Swiggy due to Instamart (quick commerce) from FY21.

Quick commerce, GMV

Swiggy’s quick commerce initiative, Instamart, helped it scale up significantly. Revenue from sales of traded goods for Swiggy quadrupled to roughly Rs 2,030 crore in FY22. Zomato was a late entrant in the grocery delivery segment. It shut down its own grocery delivery pilot as it faced niggling challenges in inventory and gaps in order fulfilment. However, it finalised its strategy of grocery delivery play via the Blinkit acquisition in Q2FY23.

For perspective, Blinkit clocked a gross merchant value (GMV) of $275 million in H12022 compared with Swiggy’s GMV of $257 million. The number of orders for Instamart grew 20 times YoY in H1CY22, it said.

Meanwhile, the average brokerage target on Zomato, as per Trendlyne stood at Rs 67, which suggests a 19 per cent potential upside on the counter.

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