Food delivery aggregator Swiggy Ltd. received an 'outperform' rating as Bernstein Research initiated coverage on the stock. The platform will be among the winners in India's rapidly booming quick commerce space, it said.
The Bengaluru-headquartered aggregator will benefit from the structural shift to super-fast delivery models, according to a Bernstein note.
The brokerage has a target price of Rs 635 per share, implying an upside of 25% from the previous close.
Swiggy pioneered food delivery in 2014 and later quick commerce and is the second largest hyperlocal platform after its rival Zomato Ltd., analysts at the brokerage firm said.
Quick commerce is an attractive category and Swiggy is one of the core beneficiaries of the shift. The growth runway remains robust with Swiggy expected to grow over 90% CAGR in the medium term, Bernstein said.
In a move to counter Zomato's 15-minute quick delivery plan, Swiggy on Wednesday debuted the 10-minute food delivery app Snacc. Moments after this, it also unveiled on Wednesday another new venture via a new app, Pyng, a professional services marketplace.
Swiggy's positive initiation comes after its rival received downgrades from analysts, triggering the stock to test the so-called 'bearish territory'.
"We expect the Duopoly structure to sustain," Bernstein said. The market share should stabilise after falling 4% in the last three years, led by better customer acquisition and innovative product launch, it said.
Even with the sector's competitive intensity growing, Bernstein expects incumbents like Swiggy and Zomato to hold market share. "Swiggy has built strong assets allowing the company to remain ahead of competition."
Swiggy trades at a 50% discount to Zomato on an enterprise value to sales basis and the market is pricing in lower success in quick commerce and potential share loss in food delivery, it said. Since its listing on Nov. 13, shares of Swiggy have risen by 7.6%. The relative strength index was at 39.
Seven of the 12 analysts tracking the company have a 'buy' rating on the stock, two suggest a 'hold' and three have a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 18.9%.
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