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The entrance of Swiggy into the stock market has ignited a fierce rivalry with its long-standing competitor, Zomato. While Zomato has been basking in the limelight of the capital market, enjoying a surge in its share value since its 2021 listing, Swiggy's arrival promises to shake up the dynamics of the industry. While Zomato currently boasts a dominant market position across various segments, its higher valuation presents an opportunity for Swiggy to potentially outperform.
Aditya Suresh, head of equity research at Macquarie Capital, highlights that Swiggy lags behind Zomato by 4-6 quarters in terms of food delivery and quick commerce operations. However, Suresh believes that Swiggy's path to closing the gap in food delivery is relatively straightforward, as the company focuses on expanding its monthly transacting users (MTUs). However, catching up in the quick commerce sector poses a more significant challenge. Blinkit, Zomato's quick commerce arm, has achieved adjusted EBITDA margin breakeven, while Instamart, Swiggy's counterpart, continues to operate at a loss even at the contribution margin level.
The operational gap between Swiggy and Zomato suggests that Zomato will likely deliver stronger results in the short term. Nevertheless, despite Zomato's anticipated business outperformance, its stock performance may not reflect this strength. Swapnil Potdukhe, vice president at JM Financial, points out that Zomato's premium valuation multiples, comparable to those of top-tier retail businesses, limit its potential for significant rerating. This limitation applies unless the market shifts towards a monopolistic scenario. In contrast, Swiggy's current valuation multiples are considerably discounted compared to Zomato's. Potdukhe emphasizes that strong outperformance by Swiggy in terms of GOV/revenue growth or a substantial boost in profitability within core areas like food delivery or quick commerce could trigger a significant rerating of its multiples.
While Potdukhe acknowledges the potential upside for Swiggy, he continues to favor Zomato due to its past execution strength and established market leadership in key comparable segments. Although Zomato boasts a larger transacting user base, other key metrics remain similar for both platforms, according to a Macquarie report. Swiggy's overall Monthly Transacting User (MTU) base across platforms stood at 12.7 million as of the end of FY24, trailing Zomato's base of 18.4 million. JM Financial attributes Zomato's higher MTUs to factors such as its higher annual transacting users, deeper penetration in lower-tier towns and cities, and a greater number of membership subscriptions.
In the quick commerce segment, Blinkit holds a significant lead over Instamart in terms of transacting users, average order value (AOV), efficiency, and take rates, making Instamart's journey to catch up a challenging one. Macquarie attributes Blinkit's industry leadership to factors such as its geographic and SKU mix, higher dark store throughputs, stronger advertising, and direct brand sourcing. While both quick commerce players had comparable monthly transacting user (MTU) bases in FY23, Blinkit surpassed Instamart due to a sharp growth acceleration over the past five quarters.
Although the dark store counts of both Blinkit and Instamart are similar, Blinkit's throughput, representing the gross order value per dark store, is higher. This higher throughput contributes to lower operational costs and enhanced profitability. The battle between Swiggy and Zomato in the food delivery and quick commerce space is likely to intensify as both companies seek to dominate the market. While Zomato currently holds a stronger position, Swiggy's potential for growth, particularly in the food delivery segment, cannot be overlooked.
Source: Food delivery giants face off: How Swiggy measures up to Zomato?