HSBC Initiates Coverage On Swiggy With 'Hold', Says Intense Competition Key Challenge

HSBC has initiated coverage on Swiggy noting the intense competition in the quick commerce segment as a key challenge, projecting a hypergrowth phase for the industry but delayed profitability for most players, including itself. 

The brokerage has a ‘hold’ rating and a target price of Rs 550, implying a potential upside of 6.2%. 

Swiggy’s quick commerce platform, Instamart, has grown at a Compound Annual Growth Rate of 63% between fiscal 2023 and the second quarter of fiscal 2025. However, its growth lags behind Blinkit, which reported a 95% CAGR over the same period. HSBC attributed this to a slower pace of dark store additions, with Instamart expanding at a 20% CAGR compared to Blinkit’s 45%.

The brokerage expects the quick commerce industry to grow at a robust 70% CAGR over the next five years, driven by demand for faster delivery services. Despite this growth, competitive pressures from rivals like Blinkit and Zepto could make profitability a distant goal for Swiggy. HSBC noted that measures to improve margins, such as raising delivery charges or reducing discounts, might weaken Swiggy's competitive edge.

In food delivery, Swiggy's gross order value grew at a CAGR of 16% between fiscal 2022 and fiscal 2024, slower than Zomato’s 23%. Contribution margins for Swiggy stood at 6.6% in second quarter of fiscal 2025, lower than Zomato’s 7.6%. HSBC highlighted that while the food delivery segment is more mature and less competitive, Swiggy's lagging performance further underscores the challenges it faces.

HSBC valued Swiggy at $16 billion, including $5 billion for food delivery, $10 billion for quick commerce, and $1.3 billion in cash and investments. However, it does not foresee Ebitda breakeven for the overall business before fiscal year 2028.

Swiggy share price fell as much as 1.84% to Rs 530 apiece on the NSE. It was trading 0.93% lower at Rs 535 apiece, compared to a 0.02% decline in the benchmark Nifty 50 as of 9:16 a.m. The stock has risen 18.42% year-to-date.

Two out of the seven analysts tracking Swiggy have a 'buy' rating on the stock, two recommend a 'hold' and three suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 11.1%.