Shares of Swiggy, the leading food delivery giant, surged by 5% to ₹484.50 on the Bombay Stock Exchange (BSE) during Wednesday’s intra-day trade, continuing a two-day rally of 12% after UBS initiated coverage on the stock with a ‘Buy’ rating. UBS highlighted that Swiggy is trading at a significant valuation discount compared to its rival Zomato, which has led to the stock’s strong upward movement. The brokerage has set a 12-month price target of ₹515 for Swiggy.
Stock Performance and Market Debut
In the past three days, Swiggy’s stock price has surged by 16%, while it gained 20% over the last four days. The company made its stock market debut on November 11, and since then, its performance has been closely monitored by investors. On November 14, Swiggy’s stock reached a record high of ₹489.25, marking a new milestone for the company. By 09:36 AM on Wednesday, the stock was trading 3.4% higher at ₹477.25, outperforming the BSE Sensex, which showed a marginal decline of 0.08%.
UBS Initiates Coverage with Positive Outlook
UBS analysts believe that Swiggy is well-positioned to benefit from the rapid growth of India’s food delivery and quick commerce markets, which are both benefiting from urbanisation and the expanding middle class. They project a 35% compound annual growth rate (CAGR) in Gross Merchandise Value (GMV) and a 29% CAGR in revenue for Swiggy between FY24-27.
Despite the company losing market share in both the food delivery and quick commerce (q-com) sectors during calendar year 2023 (CY23), UBS analysts have observed signs that its market share is beginning to stabilise. UBS also highlights that Swiggy’s strategic changes and recent investments in its q-com segment are likely to lead to volume growth and an improvement in margins. The brokerage firm believes that the valuation discount Swiggy currently holds compared to Zomato will narrow over time as Swiggy’s market share stabilises.
According to UBS, the company’s stock price is currently at a 35-40% discount to Zomato, and they see room for this discount to close as Swiggy demonstrates stabilising market share. In their initiate coverage report, they stated, “While the company lost market share in CY23, data from UBS Evidence Lab food delivery receipts shows signs of market share stabilisation; the same is visible in the Q1FY25 results as well.”
Elara Capital’s View on Swiggy’s Recent Strategies
Meanwhile, analysts at Elara Capital have noted that Swiggy has adopted a more aggressive approach in the last 60 days, expanding its discounts, improving partner engagement, and working to close the gap with Zomato. They mentioned that advertising spend by quick-service restaurants (QSRs) is still higher on Zomato compared to Swiggy, but the company’s efforts to increase engagement with restaurant partners are showing signs of progress.
Swiggy has significantly improved its engagement with restaurant partners, increasing communication frequency to twice a week and providing enhanced data support. The company is actively discussing growth plans with its partners, with the aim of narrowing the operational gap between itself and Zomato through these progressive strategies. Swiggy has also been focusing on improving operational performance despite having a smaller team compared to Zomato, which has a more extensive operational presence.
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Swiggy’s Strategic Position in the Market
Swiggy’s growth potential is rooted in its ability to capitalise on the booming online food delivery and quick commerce sectors in India. Both segments are experiencing rapid growth, driven by an increasingly urbanised population and a rising middle class with greater disposable income. Analysts believe that Swiggy’s recovery in market share combined with its aggressive strategic adjustments will enable the company to close the valuation gap with Zomato.
While Swiggy faces strong competition from Zomato, the company’s recent market movements, improved partner engagement, and a refined business strategy have placed it in a favourable position to outperform expectations over the next few years. The company’s impressive stock rally and the positive analyst outlook indicate that Swiggy is a promising player in the fast-evolving food delivery and quick commerce landscape.
Looking Ahead
Swiggy’s management is focused on expanding its presence in the food delivery sector, with an eye on sustained growth and increased profitability. As the company continues to enhance its platform and refine its operational model, there is strong potential for Swiggy to narrow the market share gap with Zomato, making its stock an attractive investment for those looking to capitalise on the future of India’s online food delivery space.
