Already one of the big bets in the online food delivery service area, Swiggy has picked up critical fanfare with its initial public offering listing at a valuation of $1.3 billion. Now, after this, JM Financial has begun covering Swiggy with a “buy” call that calls it as one of the quickest-growing consumer plays from India. With its assigned target price being Rs 470 for Swiggy’s stock, JM Financial sees the shares yielding a strong 20% profit over its initial price of Rs 390.
Swiggy’s shares debuted on November 13 trading at an 8 percent premium over the IPO price. The stock gained momentum quickly, rising to Rs 448—a rise of about 15%—as investors reacted positively to its growth prospects.
Swiggy or Zomato – who has an edge?
The grocery delivery business Instamart is the fastest-growing business for Swiggy, according to JM Financial analyst Swapnil Potdukhe, whose scale could possibly soon overtake that of food delivery. That’s booming on the back of India’s consumer market, said Potdukhe. Part of a trend in quick-commerce, Swiggy is perhaps the largest company in that space, but Zomato has been growing fast.
The brokerage finds the company well-positioned in India’s hyper-local delivery landscape and believes it is a large growth opportunity. The nation’s food delivery market is expected to grow by 20% in the near term; however, JM Financial states Swiggy and Zomato hold a kind of duopoly position. That configuration, combined with Swiggy’s initiatives towards honing unit economics and achieving operational efficiency, points to the road ahead for sustainable margins.
Funds from Initial Public Offering gives Swiggy a major financial boost
For the funds from the IPO have now given Swiggy a financial strength, JM Financial believes that Instamart would witness tremendous scale-up, handling the earlier challenge to become a standalone segment via scale-driven operating leverage.
On the other hand, Macquarie had also given an “underperform” rating for Swiggy, pricing it at a much lower target price of Rs 325. Though Swiggy had a growth prospect, Macquarie did not seem very confident about the profitability of Instamart, as if there is some uncertainty over the future profitability of quick commerce.
According to JM Financial, the success of Swiggy’s IPO and continued growth for Instamart might turn out to be a turning point in Swiggy’s path towards market leadership.
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