Swiggy Growth Headroom, Profitability Prompt 'Outperform' Rating From CLSA On Initiation
CLSA sees Swiggy will be the largest beneficiary of India's quick commerce growth.
Swiggy Ltd. has a new taker. The quick commerce player has received an 'outperform' rating from CLSA with a target price of Rs 708 apiece, which implied 32% upside potential. The brokerage believes Swiggy significant growth opportunity in both the food delivery and quick commerce space because of the large total addressable market.
CLSA sees Swiggy will be the largest beneficiary of India's quick commerce growth. The quick commerce is estimated to grow six times in financial year 2024 and 2027. However, it will continue to lag Zomato.
CLSA estimates that India's food delivery and quick commerce will have a financial year TAM of $16 billion and $27 billion, respectively. For Swiggy, CLSA sees gross order value of $7 billion in both the categories. "We see Swiggy's GOV and revenue to grow at a CAGR of 43% and 32% in FY24-27."
Swiggy will likely continue as one of the most innovative consumer platforms with services like event bookings and dineout and its extensive loyalty programme, CLSA said. Other than being the most recognised brand among young Indians, it's a pioneer and early leader in quick commerce.
There's question of whether Swiggy can match execuhas retion with its ideation despite all the good points on its side. CLSA believes it can as it has built a strong management team to build on key verticals.
Key risks to Swiggy is scrutiny on the sector by the regulators and higher discounting in quick commerce space.
Swiggy Vs Zomato: Catching Up With Zomato Not Required For Successful Investment Case
CLSA expects Swiggy to lag Zomato as the valuation discount adequately reflects this reality. Meanwhile, the brokerage sees enough opportunities in the market for Swiggy to thrive in both of its key categories and also in newer categories.
Swiggy had been an early mover, but Zomato has overtaken it in both food and quick commerce on GOV and transacting customers.
CLSA's rating and target price are based on equal-weighted blend of discounted cash flow and a Sep 26CL price/B2C GOV sales multiple 1.4x, which is a 22% discount to the multiple applied to Zomato.
