Swiggy rallies 12% in 2 days after UBS initiates coverage with 'Buy' rating

UBS believes Swiggy is well positioned to benefit from the rapid growth in India's food delivery and quick commerce markets with an estimated GMV and revenue CAGR of 35% and 29% over FY24-27e.

Shares of food delivery major Swiggy rallied 5 per cent to Rs 484.50 on the BSE in Wednesday’s intra-day trade, surging 12 per cent in the past two days after UBS initiated coverage on the stock with a “Buy” rating, citing “significant” valuation discount to rival Zomato. The brokerage has set a 12-month price target of Rs 515. 

 

In the last three days, the stock price of Swiggy has soared 16 per cent, while, it recovered 20 per cent in four days. The stock had hit a record high of Rs 489.25 on November 14. Swiggy made its stock market debut on November 11.

 

 

At 09:36 am; the stock was quoting 3.4 per cent higher at Rs 477.25, as compared to 0.08 per cent decline in the BSE Sensex. 

 

Swiggy is among the top two platforms in the online food delivery and quick commerce space in India, both fast growing segments benefiting from urbanisation and a growing middle class. While the company lost share in calendar year 2023 (CY23) in both segments as it recalibrated its business strategies, latest data indicates market shares starting to stabilise.

 

Analysts at UBS believe Swiggy is well positioned to benefit from the rapid growth in India's food delivery and quick commerce markets with an estimated Gross Merchandise Value (GMV) and revenue compounded annual growth rate (CAGR) of 35 per cent and 29 per cent over FY24-27e. 

 

With early signs of market share stabilization in food delivery, and recent investments and strategic changes in q-com leading to likely volume growth (and margin) recovery in q-com, analysts believe this discount should narrow over time. Therefore, we believe current valuations leave room for upside.

 

“While the company lost market share in CY23, data from UBS Evidence Lab food delivery receipts shows signs of market share stabilisation; the same is visible in the Q1FY25 results as well. After adjusting for its lower scale vs Zomato, we believe the stock's price is at 35-40 per cent discount to Zomato and see room for this valuation discount to narrow as the company demonstrates stabilising market share,” the brokerage firm said in its initiate coverage report.

 

Meanwhile, according to Elara Capital, Swiggy has become aggressive in the past 60 days, expanding discounts, improving partner engagement, and trying to narrow gaps with Zomato; however, ad spend by quick service restaurant (QSR) chains remain higher on Zomato vs Swiggy.

 

Engagement with restaurant partners has improved as Swiggy has adopted an aggressive approach from the past 60 days to improving performance, increasing communications with restaurant partners to twice a week and providing enhanced data support. It is actively discussing detailed growth plans with partners, aiming to bridge the gap with Zomato through progressive strategies. Swiggy faces a disadvantage in terms of team size for operational work, whereas Zomato has a stronger presence, the brokerage firm said in consumer discretionary post conference notes.