Swiggy shares can rally up Rs 475, says Motilal Oswal as it initiates a ‘Neutral’ rating

After HDFC Securities and JM Financial, Motilal Oswal became the third domestic brokerage firm to have initiated coverage on the newly-listed foodtech firm Swiggy saying that quick commerce is a once-in-a-lifetime opportunity to disrupt consumption in India. Motilal gave a target price of Rs 475 which signals an upside potential of 13% but gave a “Neutral” rating, citing execution risks and strong competition.

Swiggy’s evolving business model, highlighted in a recent Motilal Oswal brokerage report, places the company as a pivotal player in India’s burgeoning “quick commerce” market. Leveraging its unified platform for food delivery, grocery shopping, and lifestyle services, Swiggy presents an attractive value proposition for urban consumers. However, execution hurdles and intense competition pose challenges for this trailblazer, Motilal Oswal notes.

Swiggy’s Instamart, a pioneer in the field, is projected to sustain a 60% compounded annual growth rate (CAGR) over FY24-28, the brokerage reported. Despite rapid growth, Instamart trails competitors like Blinkit in contribution margins due to lower average order values (AOV) and take rates.

The company’s path to profitability lies in optimizing AOVs and leveraging its platform for ad revenues and private label sales. Achieving parity with Blinkit’s margins could position Swiggy as a leading player in quick commerce, Motilal Oswal said.

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Swiggy’s food delivery segment, which accounts for 67% of its gross merchandise value (GMV), has achieved stable unit economics. The company recently broke even in adjusted EBITDA terms, posting a 0.9% margin in Q1 FY25. Contribution margins in this segment are expected to rise to 9.0% by FY28.

However, Zomato, Swiggy’s primary competitor, continues to lead with a 58% market share in food delivery compared to Swiggy’s 42%. The report suggests that Swiggy’s customer base is stickier, with higher GMV per monthly transacting user (MTU), but notes that Zomato’s stronger execution and profitability leave little room for complacency.

Swiggy’s unified app strategy, which integrates diverse services like food delivery, quick commerce, and event bookings, distinguishes it from Zomato’s multi-app model. While this approach has fostered user engagement and operational synergies, it has not yet translated into market dominance.

Despite the challenges, Swiggy remains a key player in India’s evolving digital economy. Its ability to optimize its quick commerce operations and enhance monetization across its unified platform will determine its long-term success. “The battle for quick commerce leadership is just beginning,” the report emphasizes, adding that Swiggy is well-positioned to capture significant market share with strategic improvements.

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