Swiggy launched its much-anticipated Rs 11,300 crore public offer, setting the stage for a showdown with its rival Zomato on the exchanges. As both companies try hard to capture investor attention, Swiggy’s IPO adds a fresh conundrum as to which company presents a more compelling investment opportunity in the food delivery space.
The competitive dynamics between Zomato and Swiggy are underscored by a rapidly expanding food delivery and quick commerce market. The online food delivery industry in India is projected to grow at a 20 percent CAGR from 2023 to 2028, with an 8-10 percent increase in user growth.
In quick commerce, groceries are expected to dominate with a 60 percent share, while the sector itself, currently accounting for only 0.3 percent of India’s retail market, could potentially reach a 2-3 percent share, driven by an estimated 60-80 percent annual growth.
Zomato currently leads the Indian online food delivery sector with a market share of approximately 58 percent and holds a 40-45 percent stake in quick commerce. After facing skepticism over high valuations and losses, Zomato has managed a remarkable financial recovery, posting four profitable quarters and achieving positive EBITDA in its quick commerce arm, Blinkit.
This turnaround has resulted in a 120 percent rise in its stock this year, signaling strong investor confidence.
In terms of growth strategies, analysts believe Zomato has already exhibited higher market traction with a robust gross order value CAGR of 23 percent compared to Swiggy’s 15.5 percent.
Despite Zomato’s lead, Swiggy’s IPO represents an attempt to close the valuation and profitability gap. The company currently remains in the red, reporting a INR 2,350 crore loss in FY24.
After its IPO, analysts believe Swiggy will aspire to turn EBITDA positive in the near term by curtailing its promotional and advertising spends.
“If we look back, post IPO Zomato has quickly shifted its focus on improving profitability which has paid off well. We expect Swiggy to do the same,” said Atish Matlawala, Sr Fundamental Analyst, SSJ Finance & Securities.
The post IPO funds for Swiggy will also spillover onto the balance sheet, which could enable it to perform similar to Zomato or even better with almost INR 1178 crore into expansion and setting up of Dark Store network for quick commerce segment.
“This can give Swiggy an additional lever for faster phase of growth in competition to Zomato,” said Prashanth Tapse of Mehta Equities.
Even in the future, the addressable market for both companies remains the same and so are the growth triggers. Zomato has already tested the market and made it a ready platform for Swiggy to run better than Zomato.
“If we talk about the operating matrix, due to experience, Zomato is better placed, but post IPO money comes in, Swiggy can faster adopt and improve the matrix to match the market trend. If we analyze Q1FY25 both business models have delivered similar growth with Swiggy still burning more cash from the balance sheet while Zomato is sitting on a good amount of cash for future expansion,” Tapse said.
Which is the better investment bet currently?
For long term shareholder value, analysts believe investors should try to have a piece of both the businesses as it’s a duopoly market with high growth sector outlook and both companies are likely to make healthy profitability in future.
“Swiggy can be a one notch better as the IPO offer is on a very meaningful discount to Zomato, which can be a thought before investing in this IPO,” Tapse said.
Matlawala says Zomato is the benchmark used to evaluate food aggregator business and that investors will evaluate the performance matrix for both the companies and select a better one.
“If you ask me to choose one investment between Swiggy IPO and Zomato currently, I would go invest my 70 percent fund allocation towards Swiggy reason as the fresh IPO money can bring in better operating matrix and rest 30 pecr fund allocation into Zomato as it has already proven its strength and growing better and faster than the sector,” Tapse said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
