Food delivery giants face off: How Swiggy measures up to Zomato?

Zomato's top rival--Swiggy made its market debut on November 13.

The market debut of Swiggy has brought its rivalry with Zomato into the stock market. While Zomato has long enjoyed its stint in the capital market without any competition, with its shares surging over 100 percent since its listing back in 2021, the entry of Swiggy may change the game for the industry leader.

While Zomato holds the advantage of market leadership across key segments compared to Swiggy, its higher valuation could pave the way for Swiggy to potentially outperform. On the business front, Aditya Suresh, head of equity research at Macquarie Capital, sees Swiggy 4-6 quarters behind Zomato in its food delivery and quick commerce businesses.

Suresh believes Swiggy's path to catching up with Zomato in food delivery appears relatively straightforward, as the company focuses on expanding its monthly transacting users (MTUs). However, gaining ground in the quick commerce segment poses a greater challenge. For context, while Blinkit has reached adjusted EBITDA margin breakeven, Instamart still operates at a loss, even at the contribution margin level.

Given the operational gap between Swiggy and Zomato, the latter is expected to deliver stronger results in the near term. However, despite Zomato’s business likely outperforming Swiggy's, its stock performance may not mirror that strength. With Zomato already priced at premium valuation multiples akin to top-tier retail businesses, the potential for significant rerating remains limited, unless the market moves toward a monopolistic scenario, Swapnil Potdukhe, vice president at JM Financial, said.

Also Read | Swiggy lagged Zomato in food delivery and quick commerce but narrowed gap in FY24

Potdukhe noted that Swiggy's current valuation multiples stand at a sizeable discount to Zomato's. "Consequently, strong outperformance by Swiggy in GOV/revenue growth or a substantial boost in profitability in core areas like food delivery or quick commerce could trigger a significant rerating of its multiples," he added.

Despite that, Potdukhe also stated that even though he sees reasonable upside potential for Swiggy at the current juncture, he continues to favour Zomato due to its stronger past execution and established market leadership in key comparable segments.

Akriti Mehrotra, Research Analyst at StoxBox, noted that while Swiggy remains a key player in the food delivery market, it struggles with efficiency and market share expansion. "Despite the buzz around its listing, Swiggy must tackle profitability challenges and streamline operations to achieve sustainable growth. We will revisit our recommendation once Swiggy shows consistent improvement in its financial metrics," Mehrotra stated. In contrast, she emphasized Zomato’s steady growth and profitability as reasons it stands out as a safer long-term investment choice.

Echoing a similar sentiment, Viral Bhatt, founder of Money Mantra, remarked on the evolving dynamics of the food delivery space. "Both Zomato and Swiggy have established strong footholds, but Zomato’s diversified business model and robust brand position offer significant growth potential. Investors should carefully evaluate the risks and rewards before making decisions," Bhatt advised.

Food delivery: Zomato vs Swiggy

Apart from a higher transacting base for Zomato, other key metrics remain similar for both platforms, a Macquarie report stated. Swiggy's overall Monthly Transacting User (MTU) base across platforms stood at 12.7 million as of the end of FY24, trailing Zomato's base of 18.4 million.

Brokerage firm JM Financial believes Zomato's higher annual transacting users, deeper penetration in lower-tier towns and cities, and a greater number of membership subscriptions are the likely triggers that lead to its higher MTUs than Swiggy.

Quick Commerce: Blinkit vs Instamart

Blinkit stands much ahead of Instamart on accounts of transacting users, average order value (AOV), efficiency, and take rates, making Instamart's journey of catching up a bumpy one. According to Macquarie, Blinkit’s industry leadership is driven by factors such as its geographic and SKU mix, higher dark store throughputs, stronger advertising, and direct brand sourcing.

While both quick commerce players had similar monthly transacting user (MTU) bases in FY23, Blinkit outpaced Instamart due to a sharp growth acceleration over the past five quarters.

Also, while the dark store counts of both Blinkit and Instamart are around the same levels, the former's throughput, meaning the gross order value per dark store, is higher, which helps lower operational costs and boost profitability.

Also Read | Swiggy's journey to Rs 10,000-crore IPO: A look at its growth, celebrity backing, and rivalry with Zomato

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