- Eternal and Swiggy received buy ratings from DAM Capital upon coverage initiation
- Both companies' food businesses are mature with expected margin expansion and cash flow growth
- Eternal's Blinkit and Swiggy's Instamart expanding dark stores aggressively to improve profitability
New-Age Tech Stars: Eternal Ltd. and Swiggy Ltd. received a 'buy' rating upon coverage initiation from DAM Capital. Analysts said both companies' food businesses have now matured and they expect margin expansion and strong free cash flow growth over the next three years, driven by lower capital expenditure and improved working capital efficiency.
Higher margin and better cash flow will aid the funding of their Quick Commerce (QC) businesses, with Zomato's QC business likely reaching Ebitda profitability by the fourth quarter of this year and Swiggy by the fourth quarter of FY28.
DAM Capital projects revenue growth of 42% for Eternal and 28% for Swiggy over the next three years. Zomato is already profitable, while Swiggy will reach profitability by FY28.
"With limited threat from new entrants due to high entry barriers like cash burn, customer acquisition costs, and long execution timelines, the Zomato-Swiggy duopoly is expected to remain intact," a note aid.
Quick Commerce
Eternal's Blinkit segment became Ebitda neutral in the first half of the current fiscal, but net loss widened due to an aggressive store expansion strategy, set to grow from 1,300 stores at the end of March to 2,000 by December, DAM Capital said.
However, as maturity time per store decreases, analysts expect Blinkit to achieve adjusted Ebitda profitability by the March quarter. Swiggy's Instamart, following a similar store expansion strategy, will increase its dark stores from 697 in December 2025 to 1,050 by June 2026.
"While Swiggy trails Blinkit in profitability, it is taking steps to improve margins, including the Maxsaver campaign to boost Average Order Value and increasing stock-keeping units per store. We expect Swiggy to reach adjusted Ebitda profitability only by FY28," DAM Capital said.
Eternal, Swiggy Price Target
Eternal: DAM Capital has a price target of Rs 400, a potential upside of 26% over the previous close.
Swiggy: DAM Capital has a price target of Rs 515, a potential upside of 30%, even with a 75% discount on the quick commerce business. "We see a larger upside potential for Swiggy, as we believe that the market is significantly undervaluing its QC business currently due to near-term losses," the note said.
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