Swiggy To Command Lower Valuation Than Zomato In Public Market: Elara Capital

Brokerage firm Elara Capital expects Swiggy to command a lower valuation compared to its rival and foodtech major Zomato’s valuation in the public market as the Deepinder Goyal-led startup continues to outperform the IPO-bound company across several key parameters such as revenue, gross order volume, order count, among others.

In a recent research note, Elara Capital pointed out that Zomato’s business is bigger than that of Swiggy and has a higher growth rate than Swiggy. Besides, Zomato has market leadership in the quick commerce segment and has achieved profitability in the food delivery segment and break-even in the quick commerce vertical.

It is pertinent to note that Zomato was valued at about $7 Bn as per its IPO in 2021 and got listed at a valuation of $12 Bn. Its market capitalisation has zoomed since then and currently stands at INR 2.39 Lakh Cr (about $28.55 Bn). 

To trade on par or at a valuation premium to Zomato, IPO-bound Swiggy will not only need to gain market share in food delivery and quick commerce segments but also chart a path towards profitability, Elara Capital said.

However, getting closer to Zomato’s adjusted EBITDA margin in the food delivery segment and breaking-even in the quick commerce segment may be a “long haul” for Swiggy, as per the report.

In June, international brokerage firm Goldman Sachs said that Zomato held a 56-57% market share in the food delivery segment, and led its rivals in the quick commerce segment by at least 50%.

Analysts at Elara Capital highlighted that Zomato’s revenues from the food delivery and quick commerce verticals were 27% and 10% higher, respectively, compared to Swiggy’s in the financial year 2023-24 (FY24).

Elara Capital also highlighted that Zomato’s food delivery vertical posted an adjusted EBITDA of 2.8% in FY24 as against Swiggy’s negative adjusted EBITDA of 0.2% during the same period. 

During FY22-FY24 period, Zomato’s GOV grew at a CAGR of 23% as compared to Swiggy’s 15.5% CAGR, it said. Similarly, Zomato’s average order volume (AOV) grew at a CAGR of 3.7% during the period as against Swiggy’s 2.5%, it said.

Swiggy’s quick commerce arm Instamart has also lost ground to Zomato-owned Blinkit on parameters such as GOV, AOV, order counts, the report said.

According to Elara Capital, Blinkit’s monthly transacting user base stood at 5.1 Mn as compared to Instamart’s MTU of 4.2 Mn in FY24. But Blinlkit had a 54% higher GOV and 2.5X higher revenue than Instamart in the previous fiscal year.

“Zomato’s  food segment is trading at 53X one-year forward EV/EBITDA whereas the  quick commerce segment is trading at 5.5X one-year forward EV/sales. Swiggy may command a discount to Zomato valuation,” the brokerage firm said.

It is pertinent to mention that Elara Capital has a ‘Buy’ rating on Zomato with a price target of INR 320.

The report comes at a time when Swiggy is gearing up for its public listing. The startup is reportedly considering publicly filing its draft red herring prospectus (DRHP) with market regulator SEBI this week for an over $1 Bn initial public offering.

As per a report, Swiggy also plans to get shareholders’ nod to increase the fresh issue size of its IPO to INR 5,000 Cr as against INR 3,750 Cr planned earlier. The startup is said to be eyeing a valuation of $15 Bn for its IPO, a premium of over 40% to its previous valuation of $10.7 Bn. 

Notably, Swiggy trimmed its consolidated net loss by 44% year-on-year to INR 2,350 Cr in FY24 while revenue grew 36% to INR 11,247 Cr.

The buying interest in the unlisted shares of Swiggy has also surged ahead of the highly anticipated IPO. Earlier this month, Hindustan Composites said it would acquire a 0.01% stake in Swiggy for INR 5.17 Cr in an all-cash deal. On Tuesday (September 17), Modern Insulators said it is making a “long-term investment” worth nearly INR 5 Cr in Swiggy.

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