Amid the positive listing of the Swiggy IPO on the stock exchanges despite muted expectations, brokerage major JM Financial has initiated a "Buy" coverage on the stock, raising the target price to ₹470 from its current listing price of ₹412 on the BSE, indicating 21% upside.
The brokerage, in its latest commentary on the food-tech platform's IPO listing, says despite having ceded some space to competition, it is one of the fastest-growing consumption plays with multiple levers to move towards sustainable margins. "We initiate on Swiggy with a ‘BUY’ rating and SOTP-based Mar’26 TP of INR 470."
The brokerage used the multiples-based SOTP (sum-of-the-parts) method to value Swiggy in which each of its reported segments is valued basis of either EBITDA, GOV or sales multiples. "These multiples are 10-50% lower than those used to value Zomato’s segments due to differences in scale and profitability. Despite this discount, our Mar’26 TP for Swiggy works out to ₹470, indicating ~21% upside," the brokerage adds.
Swiggy or Zomato?
In its recommendation on Swiggy or Zomato, the brokerage says while on an absolute basis, Swiggy offers decent upside, it would prefer Zomato if asked to pick only one due to its superior execution in the past and market leadership across key segments. "We, however, suggest that investors play both (preferably with higher weightage for Zomato), as in any case both are likely to be amongst the fastest growing consumption names and could, therefore, outperform the broader market returns," says the report.
What could play in Swiggy's favour:
Analysts at JM Financial believe that in a duopoly structure with strong brand recall for both and little to differentiate in terms of service quality for a large set of overlapping consumer bases, Swiggy can grow closer to the market, with improving margins, aided by better control over unit economics and robust operating leverage.
Also, there are only three platforms that seem to have successfully cracked the complexity of hyperlocal delivery operations, and Swiggy is one of them, it says. "Its balance sheet is also stronger, having raised fresh funds during the IPO, which could enable it to better fend off competitive pressures. Instamart should see exponential expansion in the medium term, despite execution challenges in the past," says the brokerage.
On the recent issues surrounding execution, the brokerage believes these may be a thing of the past because they were partly attributable to the pressures of going public or the lack of experience of running a retail business. "A successful IPO and leadership revamp at Instamart could just be the catalyst Swiggy needs for a successful turnaround in its fortunes."
Swiggy shares are currently trading 8.87% up from the opening price of ₹412 apiece, while 15% up from the issue price of ₹390 apiece on the BSE. After successfully raising ₹11,300 crore through the IPO, Swiggy debuted at a premium of 7.7% over the issue price on the NSE, while at a 5.6% premium on the BSE.
India's food delivery market:
India's food delivery market is expected to expand 20% in the near future (1.2x-1.5x of the organised food services market), while the quick commerce market may grow at a CAGR of less than 50% between FY24 and FY29.
The total food consumption spend in India stood at $600 billion-800 billion as of CY23, with out-of-home consumption (including dining out, takeaway and online food delivery) accounting for 9-12% of that spend, as per Redseer. India's out-of-home consumption share is significantly lower than that of the U.S. (55-60%) and China (37-42%) due to traditional preference for homecooked food as well as inadequate supply. As a result, the food services market, sized at $70 billion in CY23, is just a fraction of the U.S. ($1,340 bn) and China ($750 bn).
