2 weeks Ago
Swiggy launched its much-anticipated Rs 11,300 crore public offer, setting the stage for a showdown with its rival Zomato on the exchanges. As both companies try hard to capture investor attention, Swiggy’s IPO adds a fresh conundrum as to which company presents a more compelling investment opportunity in the food delivery space. The competitive dynamics between Zomato and Swiggy are underscored by a rapidly expanding food delivery and quick commerce market.
The online food delivery industry in India is projected to grow at a 20% CAGR from 2023 to 2028, with an 8-10% increase in user growth. In quick commerce, groceries are expected to dominate with a 60% share, while the sector itself, currently accounting for only 0.3% of India’s retail market, could potentially reach a 2-3% share, driven by an estimated 60-80% annual growth.
Zomato currently leads the Indian online food delivery sector with a market share of approximately 58% and holds a 40-45% stake in quick commerce. After facing skepticism over high valuations and losses, Zomato has managed a remarkable financial recovery, posting four profitable quarters and achieving positive EBITDA in its quick commerce arm, Blinkit. This turnaround has resulted in a 120% rise in its stock this year, signaling strong investor confidence.
Stock Trading Technical Analysis for Everyone - Technical Analysis Course By - Abhijit Paul, Technical Research Head, Fund Manager- ICICI Securities View Program Stock Trading Technical Trading Made Easy: Online Certification Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Stock Markets Made Easy By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Introduction to Technical Analysis & Candlestick Theory By - Dinesh Nagpal, Full Time Trader, Ichimoku & Trading Psychology Expert View Program Stock Trading Dow Theory Made Easy By - Vishal Mehta, Independent Systematic Trader View Program Stock Trading Technical Analysis Demystified: A Complete Guide to Trading By - Kunal Patel, Options Trader, Instructor View Program Stock Trading Heikin Ashi Trading Tactics: Master the Art of Trading By - Dinesh Nagpal, Full Time Trader, Ichimoku & Trading Psychology Expert View Program Stock Trading A2Z of Stock Trading - Online Stock Trading Course By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Market 103: Mastering Trends with RMI and Techno-Funda Insights By - Rohit Srivastava, Founder- Indiacharts.com View Program Stock Trading Algo Trading Made Easy By - Vivek Gadodia, Partner at Dravyaniti Consulting and RBT Algo Systems View Program Stock Trading Candlesticks Made Easy: Candlestick Pattern Course By - elearnmarkets, Financial Education by StockEdge View Program In terms of growth strategies, analysts believe Zomato has already exhibited higher market traction with a robust gross order value CAGR of 23% compared to Swiggy's 15.5%.
Despite Zomato’s lead, Swiggy's IPO represents an attempt to close the valuation and profitability gap. The company currently remains in the red, reporting a Rs 2,350 crore loss in FY24. After its IPO, analysts believe Swiggy will aspire to turn EBITDA positive in the near term by curtailing its promotional and advertising spends.
"If we look back, post IPO Zomato has quickly shifted its focus on improving profitability which has paid off well. We expect Swiggy to do the same," said Atish Matlawala, Sr Fundamental Analyst, SSJ Finance & Securities. The post IPO funds for Swiggy will also spillover onto the balance sheet, which could enable it to perform similar to Zomato or even better with almost Rs 1178 crore into expansion and setting up of Dark Store network for quick commerce segment.
"This can give Swiggy an additional lever for faster phase of growth in competition to Zomato," said Prashanth Tapse of Mehta Equities. Even in the future, the addressable market for both companies remains the same and so are the growth triggers. Zomato has already tested the market and made it a ready platform for Swiggy to run better than Zomato.
"If we talk about the operating matrix, due to experience, Zomato is better placed, but post IPO money comes in, Swiggy can faster adopt and improve the matrix to match the market trend. If we analyze Q1FY25 both business models have delivered similar growth with Swiggy still burning more cash from the balance sheet while Zomato is sitting on a good amount of cash for future expansion," Tapse said. Which is the better investment bet currently? For long term shareholder value, analysts believe investors should try to have a piece of both the businesses as it’s a duopoly market with high growth sector outlook and both companies are likely to make healthy profitability in future.
"Swiggy can be a one notch better as the IPO offer is on a very meaningful discount to Zomato, which can be a thought before investing in this IPO," Tapse said. Matlawala says Zomato is the benchmark used to evaluate food aggregator business and that investors will evaluate the performance matrix for both the companies and select a better one. "If you ask me to choose one investment between Swiggy IPO and Zomato currently, I would go invest my 70% fund allocation towards Swiggy reason as the fresh IPO money can bring in better operating matrix and rest 30% fund allocation into Zomato as it has already proven its strength and growing better and faster than the sector," Tapse said.
( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times) US Election 2024 Another American Civil War if Trump loses election? What Trump victory would mean for US & the world (You can now subscribe to our ETMarkets WhatsApp channel ).
