Equirus has initiated coverage on Swiggy with an ‘Add’ rating and a target price of ₹450, citing the company’s potential to achieve significant growth in the evolving food delivery market. The brokerage highlights Swiggy’s unique positioning and future profitability prospects as key drivers for its optimistic outlook.
Key Insights from Equirus’ Report:
- Industry Outlook: Swiggy and Zomato, while operating in the same market, could diverge significantly over the next decade, akin to the trajectories of Tencent and Alibaba in China.
- Growth Projections: The food delivery segment is projected to achieve an 18% gross order value (GOV) compound annual growth rate (CAGR) over FY24-FY29.
- Margin Expansion: Swiggy’s contribution margin currently trails Zomato’s due to higher discounts and delivery costs but is expected to expand by 100 basis points. Additionally, its adjusted EBITDA margin has a 400 basis-point expansion opportunity.
- Future Profitability: Swiggy’s contribution margin is anticipated to reach 8.8%, with an adjusted EBITDA margin expected at 4.7% by FY29E, signaling the company’s entry into a profit-expansion phase.
Swiggy’s robust growth prospects, despite current challenges in margin expansion, underscore its potential to emerge as a leader in the food delivery space. The stock’s performance is expected to benefit from structural improvements and operational efficiencies.
