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The recent initial public offering (IPO) of Swiggy, a prominent food delivery platform in India, has ignited fervent discussions within the investment community. Swiggy's stock debut on the National Stock Exchange (NSE) witnessed a positive response, opening at ₹420, marking a 7.6% premium over its issue price of ₹390. This optimistic start, despite a cautious market environment, has piqued investor interest in the food delivery sector and sparked a debate about the comparative investment potential of Swiggy versus its established competitor, Zomato.
While the listing has generated buzz, retail investors have displayed a degree of restraint, reflecting the prevailing market sentiment. Gaurav Garg, representing Lemonn Markets Desk, aptly characterized the cautious approach, noting that Swiggy's initial gains, while outperforming its grey market premium (GMP) estimate, were modest compared to historical performance. He emphasized the relatively low retail investor subscription rate of 1.14 times, indicating a lack of strong conviction in the current challenging market conditions, where even high-quality stocks remain below their peak valuations.
For investors with a higher risk tolerance and an eye for growth, Garg identified a potential opportunity in Swiggy. He cited the valuation gap between Swiggy and Zomato, suggesting that Swiggy's ability to improve operational efficiency over time could translate into significant gains. However, analysts at Macquarie offered a balanced perspective, acknowledging both Swiggy's promising growth trajectory and the challenges it faces.
Macquarie's research note recognized Swiggy's potential growth runway and improving margin profile, but cautioned that the company still has a considerable path toward profitability. Despite their acknowledgment of Zomato's superior operational efficiency, Macquarie expressed a preference for Swiggy over Zomato, based on the current pricing of their respective shares. Macquarie initiated coverage with an “underperform” rating for Swiggy, assigning a target price of ₹325 per share. Nevertheless, they outlined a “blue-sky” potential for Swiggy to reach ₹700 if its Instamart unit economics improve.
In contrast, JM Financial advised investors to favor Zomato for short- to medium-term growth. Their analysis emphasized Zomato's superior execution in the past and its market leadership across key segments. While recommending investment in both counters, they suggested a higher weighting for Zomato. JM Financial assigned a target price of ₹470 for Swiggy, employing a multiples-based SOTP valuation that incorporates anticipated segment performance.
Prashanth Tapse of Mehta Equities Ltd, while acknowledging the volatility of Swiggy's stock, expressed optimism regarding its future growth. He viewed the positive listing and the price holding above the issue price as indicators of strong demand for the company. He suggested that the fear of missing out (FOMO) might propel investors to embrace Swiggy's growth potential. Tapse advised allotted investors to hold for the long term, while recommending non-allotted investors to wait for dips near the issue price before entering the market.
From a broader market standpoint, Swiggy remains India's second-largest food delivery and quick-commerce platform, serving a vast customer base of 47 million annual transacting customers. The company boasts a diverse revenue stream, encompassing a B2B distribution vertical alongside its Swiggy One membership program. While Swiggy currently trails Zomato in profitability and scale, analysts believe its strong market position and diversified revenue streams offer significant potential for long-term growth.
In conclusion, both Swiggy and Zomato present avenues for growth, albeit with varying risk profiles. While Macquarie and JM Financial differ in their assessments, the overarching consensus is that Swiggy's future success hinges on its ability to enhance operational efficiency and attain profitability. Tarun Singh, MD of Highbrow Securities, acknowledged Swiggy's strong sectoral opportunity, market share, and readiness, but cautioned long-term investors to exercise patience and wait for an opportune time to accumulate shares, especially as the stock's performance unfolds over the coming quarters.
Source: Swiggy or Zomato: Which stock will deliver better returns to investors?