Global brokerage Jefferies initiated coverage on recently listed quick commerce and food delivery player Swiggy Ltd. The brokerage issued Swiggy shares with a 'hold' call, and a target price of Rs 400, which indicates an upside of 13 percent.
Jefferies noted that Swiggy is a hyperlocal champion, and is leading Internet franchise in India. Currently, the q-commerce player boasts of a 45 percent market share in food delivery. However, this is expected to grow in high teens with margin expansion.
While quick commerce offers strong growth potential but faces intense competition today. Therefore, the pressure to achieve profitability might result in negative EBITDA and FCF over FY25-27E.
Jefferies ascribed Swiggy with multiples lower than Zomato in both the businesses given the scale gap. "A stabilisation in competition in quick commerce, higher-than-expected growth in key businesses are upside risks while higher-than-expected competition is key downside risk to our view," said Jefferies.
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Earlier this month, ICICI Securities issued recommendations on Swiggy and its rival, Zomato, based on its own channel checks. The quick commerce players seem to be focusing on incentivizing higher order values, ICICI Securities note said, adding that while item-wise discounting is still prevalent, it may be past its peak on a broader level.
ICICI Securities also believes the fall in share prices may be due to concerns over high cash burns in the quick commerce business.
Swiggy's net loss widened to Rs 800 crore in Q3FY25 from Rs 524 crore a year ago. Rising competitive intensity and aggressive dark store expansion continue to weigh on margins and these challenges are likely to persist in the next quarter.
The food delivery player's stock has struggled post-listing, falling against its debut price of Rs 412 per share. While it initially surged to an all-time high of Rs 617 on December 23, 2024, the stock has tumbled nearly 43 percent.
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