UBS Bites Into Swiggy: Sees Growth In Food Delivery, Quick Commerce

UBS initiated coverage on Swiggy with a ‘buy’ rating and a target price of Rs 515, citing significant growth potential in India’s online food delivery and quick commerce markets. The company, which recently listed on Nov. 13, is well-positioned to benefit from its improving margins and scale, the brokerage noted.

After losing market share to Zomato in 2023 due to slower expansion in Tier 2 cities and the success of Zomato’s subscription program, Swiggy has made strategic adjustments. UBS Evidence Lab data shows Swiggy’s volume growth in 2024 is now in line with industry trends. 

The company has also achieved this recovery without compromising margins, which have continued to improve, with adjusted Ebitda margin projected to reach 2.8% by fiscal 2027. 

UBS estimates Swiggy’s OFD (online food delivery) Gross Merchandise Value to grow at a low-20% CAGR over fiscal 2024 to 2027, in line with Zomato’s growth.

Despite being an early mover in India’s quick commerce space, Swiggy lost market share to competitors offering faster delivery times and an expanded product range. To address this, Swiggy has revamped its infrastructure, shutting 276 dark stores between fiscal 2023 and first quarter of fiscal 2025, increasing the average store size, and densifying its urban footprint. 

These efforts have yielded results, with first quarter quick commerce order volumes growing 41% and average order value rising by 10%. UBS forecasts a GMV CAGR of 68% for Swiggy’s quick commerce segment over FY24-27, slightly trailing Zomato’s estimated 70%.

UBS highlighted Swiggy’s stabilising market share in the OFD segment, supported by first quarter results and UBS Evidence Lab findings. While Swiggy’s current market price reflects a 35-40% discount to Zomato, UBS expects this gap to narrow as the company demonstrates sustained growth. Swiggy is projected to achieve a GMV CAGR of 35% and revenue CAGR of 29% between fiscal 2024 and 2027. 

Swiggy’s price target of Rs 515 is based on a blend of discounted cash flow and sum-of-the-parts valuation methods, aligned with assumptions for Zomato. 

Shares of the company closed 3.38% higher at Rs 430.70 per share, compared to a 1.32% advance in the NSE Nifty 50. The stock has fallen 5.55% year-to-date.

Four out of the six analysts tracking Swiggy have a 'buy' rating on the stock, one recommends a 'hold' and one suggests a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 3.1%.