UBS Gives Swiggy A 'Buy' Rating, Says Plenty Of Room At The Table

SUMMARY

Global brokerage firm UBS has initiated coverage on foodtech major Swiggy with a 'Buy' rating and a price target of INR 515 for the upcoming 12 months

The brokerage firm said there is “plenty of room at the table” and Swiggy is well positioned to benefit from the rapid growth in India's food delivery and quick commerce markets

Global brokerage firm UBS has initiated coverage on foodtech major Swiggy with a ‘Buy’ rating and a price target of INR 515 for the upcoming 12 months. This represents an over 19% upside from the stock’s last closing price of INR 431.25.

The brokerage firm said there is “plenty of room at the table” and Swiggy is well positioned to benefit from the rapid growth in India’s food delivery and quick commerce markets.

“While the company lost market cap in CY23, data from UBS Evidence food delivery receipts shows signs of market share stabilisation; the same is visible in the Q1 FY25 results as well,” the brokerage said.

On the quick commerce vertical, it said that Swiggy lost market share to peers despite being the pioneer in the segment. However, Swiggy has made infrastructure changes in line with the changing trends by expanding the size of dark stores and densifying the dark store footprint in urban areas. These changes, UBS said, have shown results with Swiggy Instamart’s order count jumping 41% in Q1 FY25 and average order value increasing by 10%.

Despite this, Instamart needs to narrow the gap with Blinkit, the brokerage said. It expects Swiggy’s quick commerce vertical to achieve adjusted EBITDA breakeven in FY29.

“After adjusting for its lower scale vs Zomato, we believe the stock’s price is 35-40% discount to Zomato and see room for this valuation discount to narrow as the company demonstrates stablising market share,” UBS said.

With this, UBS has become the latest brokerage firm to initiate coverage on Swiggy after its listing earlier this month. JM Financial initiated its coverage on Swiggy with a ‘Buy’ rating and a PT of INR 470.

On the other hand, Motilal Oswal gave Swiggy’s shares a ‘neutral’ rating but a PT of INR 475. In its note on the foodtech major, the brokerage observed that Swiggy has lost its market leader position despite being a category inventor across both food delivery and quick commerce segments.

Motilal Oswal said that Zomato extended its lead over Swiggy in food delivery from 54% to 58% in the quarter ended June. On the quick commerce front, Zomato’s Blinkit is pegged to be commanding a 46% market share, followed by Zepto at 29% and Swiggy Instamart at 25%.