Swiggy’s share price dipped over 3% on its second day of trading on Thursday. On the Bombay Stock Exchange (BSE), shares of the Bengaluru-based food delivery giant fell 3.07% to Rs 441.95 around 11:12 am.
The drop comes after a decent debut, closing at Rs 455.95 the previous day, marking a 10.67% rise from its initial listing price. Brokerage views are mixed on Swiggy’s future. HDFC Securities initiated coverage on the stock with an ‘add’ rating and a price target of Rs 430, signaling a 6% potential downside from its closing price.
According to HDFC Securities, Swiggy’s growth may trail Zomato for another 4-6 quarters unless it strengthens its monthly transacting user (MTU) base, a key driver of gross order value (GOV) growth.
Once a dominant force in food delivery and quick commerce, Swiggy has lost ground to competitors, notably Zomato’s Blinkit. Over FY22-24, Swiggy has seen slower GOV growth, with Instamart’s FY24 GOV rising 58% year-on-year compared to Blinkit’s 93%.
HDFC Securities highlighted that Swiggy’s order density and average order value (AOV) lag significantly, translating into higher fixed costs compared to Blinkit.
Despite the challenges, HDFC anticipates Swiggy’s sales to grow at a 26% compound annual growth rate (CAGR) over FY24-27, alongside a positive shift in its adjusted EBITDA margin from -15% to 2.5% and an improvement in return on capital employed (RoCE) from -25% to 1% by FY27.
The brokerage added that Swiggy has made strides in boosting its GOV mix by increasing discretionary spending, which could help narrow its current 300 basis point gap in take rates with Blinkit.
Swiggy’s path to profitability for Instamart remains challenging but achievable, according to HDFC, requiring over 2,000 daily orders per store to reach EBITDA breakeven, compared to Blinkit’s 1,500.
However, Swiggy’s evolving business model and recent leadership changes at Instamart could catalyze a stronger turnaround, said JM Financial. The brokerage issued a ‘Buy’ rating with a target price of Rs 470, highlighting Swiggy’s growth potential and positioning it as a promising play in the fast-growing consumer space.
As Swiggy works towards sustainable margins, investors may find this an interesting growth story, though it faces stiff competition from established players like Zomato.