While the changes in the Goods and Services Tax (GST) framework have posed a benefit to a series of consumer plays, food delivery and quick commerce players Eternal and Swiggy may feel the pinch. Based on the latest changes, Eternal and Swiggy will have to pay 18 percent GST on delivery charges collected from customers. However, brokerages believe the impact of this additional GST will be negligible.
At 11.30 a.m., shares of Eternal were quoting Rs 333.9, up 2.3 percent, after hitting a fresh record high of Rs 334.4. Shares of Swiggy were quoting Rs 437.2, higher by 3.3 percent.
The duo is already weighing the possibility of passing the additional cost on to consumers to offset the impact on their margins, sources close to the companies told Moneycontrol.
Importantly, platforms have historically passed on the GST burden to end customers across various fee types, suggesting that any incremental incidence this time around will likely be a pass-through.
"We believe that the impact (if any) is will be negligible for both because in food delivery, delivery charges typically get waived on two-thirds of their order volumes. In quick commerce, Blinkit already collects 18 percent GST on delivery charges, whereas Instamart ends up waiving the charges on most orders," noted JM Financial.
Zooming out, Motilal Oswal noted that the food delivery and quick commerce industry has faced multiple headwinds over the past few months. "Food delivery (FD) growth slowed due to weak consumption and macro pressures, while quick commerce (QC) profitability came under strain
from heightened competition, accelerated dark store rollouts, and elevated customer acquisition costs. We now believe the cycle is turning," said the brokerage.
Going ahead, food delivery growth, which was stunted at 17-18 percent, could accelerate beyond 20 percent in the next 2-4 quarters, which will be driven by the upcoming festive season, as well as a spur from the recent GST reforms.
As a result. Motilal Oswal upgraded its rating on Swiggy to 'buy', with an increased target price of Rs 560, implying 32 percent upside, and retained its 'buy' call on Eternal with a target price of Rs 420, implying 29 percent upside.
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