Swiggy, Zomato Stock Is A Buy For Anand Rathi, As It Initiates Coverage; Here's Why

Anand Rathi Report

We initiate coverage on Zomato Ltd. and Swiggy Ltd. with Buy ratings and 12-month target prices of Rs 385 and Rs 705, respectively (based on SOTP valuations, giving Swiggy 20% discount to Zomato).

From building core categories to opting for strategic investments, we believe Zomato and Swiggy’s end goal is the same, ie., owning intracity E-commerce.

Both companies are stepping up diversification efforts besides food delivery. While they are pursuing the same goal, both companies have chosen different paths to get to it (Swiggy’s mostly organic versus Zomato’s acquisition-led strategy; the former’s integrated apps approach versus the latter’s separate apps).

In food delivery, the duopoly is well entrenched and cannot be shaken easily. In Quick Commerce, however, we believe multiple players can co-exist.

In this fast-evolving space, both companies, with their unique strengths, have cemented their positions. Zomato leads in market share and revenue growth, thanks to a larger user base. However, Swiggy, with its relentless expansion plans in QC, launch of Bolt (10-minute food delivery service) and other new initiatives, remains a strong contender.

We believe Swiggy would continue to lag Zomato but see its execution improving with accelerating growth and higher profitability.

Key risks:

Regulatory challenges would be an overhang; intense competition in quick commerce could impact profitability, decline in discretionary spends.

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