Swiggy Second In The Race But Serving Growth Potential, Says Axis Capital Initiating Coverage

India's food delivery landscape is on fire, and Swiggy appears to have the recipe for long-term growth, believes Axis Capital, as it initiates coverage on the company with a 'buy' rating, underscoring its position as the second-largest player in the food delivery and quick commerce segments. With a target price of Rs 640, the brokerage predicts a potential 20% upside.

Food delivery in India remains underpenetrated, with ample headroom for expansion, says Axis Capital. Swiggy operates in a duopoly with Zomato, allowing both companies to benefit from market growth without intense price wars. Meanwhile, quick commerce—dominated by Swiggy's Instamart and Zomato-owned Blinkit—is on an explosive trajectory, as per the firm.

Swiggy's aggressive expansion of its dark store network, essential for hyperlocal deliveries, and a stronger assortment of products position it well to capture this growth, Axis added.

Axis expects Swiggy to achieve a 38% revenue compound annual growth rate between fiscals 2024 and 2027, with quick-commerce revenues soaring 84% and food delivery growing at 23%. Importantly, Swiggy's profitability metrics are showing signs of improvement, said Axis, adding that the company is forecast to achieve an adjusted Ebitda of Rs 390 crore in fiscal 2027, a significant turnaround from the estimated loss of Rs 1,840 crore in financial year 2024.

Instamart, Swiggy's quick commerce arm, is gaining scale, which could boost brand commissions and advertising revenue, adds Axis Capital. Additionally, the company's cost-control efforts in both fixed and delivery-related expenses are expected to sustain, further aiding margin expansion.

While Zomato may currently hold a leadership edge in execution, Swiggy is restructuring its organisation to be professionally managed, leveraging the expertise of industry veterans, and Axis Capital believes this innovation-first mindset, combined with a strengthened leadership team, will help Swiggy remain a market leader in its segments.

A slowdown in consumer spending could impact food delivery volumes, while disruptive competition in quick-commerce remains a risk, believes the brokerage. Additionally, delays in scaling its quick-commerce business and achieving profitability could weigh on investor sentiment.