Motilal Oswal Gives ‘Neutral’ Rating To Swiggy, Sets INR 475 Price Target

by · Inc42

SUMMARY

  • Motilal Oswal initiated coverage on Swiggy with a ‘neutral’ rating, saying its unified app approach will give it an edge over its peers in the food delivery and quick commerce segments
  • The brokerage said that Swiggy’s food delivery business has achieved stable unit economics and it expects margins in this business to improve from 6.4% currently to 9% by FY28
  • After months of anticipation, Swiggy made its stock market debut on November 13, with its shares listing at an 8% premium on the NSE
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Brokerage firm Motilal Oswal has initiated coverage on Swiggy with a ‘neutral’ rating, days after the company’s mega $1.3 Bn public offering, saying the foodtech major’s unified app approach will give it an edge over its peers in the highly competitive food delivery and quick commerce segments.

The brokerage has given Swiggy a price target of INR 475, reflecting an upside potential of almost 15% from the stock’s close on Tuesday.

Analysts at Motilal Oswal underlined that Swiggy has ceded its market leader position to the likes of Zomato and Zepto despite being a category inventor across both food delivery and quick commerce segments.

However, the brokerage believes that Swiggy could be one the top 3 players in the rapidly growing quick commerce segment which has disrupted the way Indian consumers shop for not just groceries but a variety of essential and non-essential goods. 

Swiggy’s approach of an integrated app offering as opposed to Zomato’s multi-app approach has maximised cross-utilisation of its services and promoted user stickiness, Motilal Oswal said.

While the concept of a super app has not taken off in India as it did in China, Swiggy is one of the few names to have bucked the trend, according to the brokerage.

“Swiggy stands out as India’s only unified app that seamlessly supports urban users’ food-related needs, from ordering in and dining out to cooking at home—all through a single platform,” it said.

The brokerage added that Swiggy’s food delivery business has achieved stable unit economics and it expects margins in this business to improve gradually from 6.4% currently to 9% by the fiscal year 2027-28 (FY28). 

Motilal Oswal analysts noted that prior to its initial public offering (IPO), Zomato’s food delivery business had a contribution margin of -11.2% in FY20, which improved to 6.9% by FY24, driven by higher commission (platform fees) and reduced variable costs.

They expect Swiggy to follow a similar growth trajectory and improve its profitability in the medium to long term.

Further, the contribution margin of 3.2% for Swiggy’s quick commerce arm Instamart pales in comparison to Blinkit’s 4%. The brokerage said the reason behind this gap is Swiggy Instarmart’s lower average order volumes (AOV) and lower take rates.

However, Instamart outshines Blinkit when it comes to mid-mile and last mile variable costs. “Swiggy’s unified platform should allow it to mine its customers better and extract higher AOVs for its Instamart business. Further, it needs to monetise this platform better for ad-sales and other value-added services for FMCG brands,” the brokerage said.

Motilal Oswal expects Swiggy’s food delivery business to clock a year-on-year growth of 22.6%, 27.9% and 19.4% in gross order value (GOV) over FY25, FY26 and FY27, respectively. The brokerage also anticipates that the adjusted EBITDA margin of the segment would turn positive at around 1% by the end of FY25.

Meanwhile, the quick commerce segment’s GOV is expected to grow 64.5%, 67.1%, and 56% during FY25, FY26, and FY27, respectively.

This comes days after JM Financial initiated coverage on Swiggy with a ‘buy’ rating and a price target of INR 470, stating it is one of the fastest-growing consumption plays with “multiple levers to move towards sustainable margins”.

After months of anticipation, Swiggy made its stock market debut on November 13, with its shares listing at an 8% premium on the NSE. The stock debuted at INR 420 as against the IPO issue price of INR 390 per share.

Its largest shareholder, Prosus sold shares worth over $500 Mn in the IPO to rake in over 3X returns via the partial stake sale.