We initiate coverage on Swiggy with a BUY rating and 12-mth DCF based target price of Rs535, implying 50% potential upside. Swiggy is India’s second-largest food tech company, with Food delivery (FD), Quick commerce (QC), and other verticals. We forecast Swiggy to deliver 28% revenue Cagr over FY25-28ii and become Ebitda/PAT positive by FY27ii/28ii. Swiggy is potentially 7/5 quarters behind Eternal in FD and 3/8 quarters behind in QC on GOV/Ebitda margins respectively. We see this as a function of slower execution in the past rather than a competitive disadvantage. We value Swiggy’s FD business at USD8.5bn vs. Zomato at USD14.4bn. With Swiggy’s mcap at USD10.3bn, its QC business (including other verticals) implies a value of USD1.8bn, trading at a deep discount of 88% to Blinkit despite being only ~50% smaller. Hence, we believe successful execution in QC could provide asymmetric upside in the stock, with easing competition in QC and market share gains in FD as key catalysts. Initiate at BUY.
Duopoly in FD, oligopoly in QC: We expect FD to reach ~USD20bn GOV by FY30ii and remain a duopoly business with no new major players emerging. In QC, we expect it to become an oligopoly with Blinkit and Swiggy Instamart as two key players. Competitive intensity may remain elevated for the next few quarters as incumbent e-tailers try to regain their share. QC is expected to grow at 50%+ Cagr over FY25-28ii and reach ~USD40bn by FY30ii, with Swiggy maintaining its top 3 position in our view.
Structural growth story, but execution is key: Swiggy offers a structural growth story, with execution being the key driver. We expect it to deliver 28% revenue Cagr over FY25-28ii and 7% Ebitda margin by FY28ii. While their duopolistic position in FD is cemented, jury is still out on leadership in the QC segment. We expect Swiggy to grow FD at 18% Cagr and reach 20% Adj. Ebitda margins by FY28ii. However, Instamart could grow by >4x by FY28ii and achieve Ebitda breakeven by FY29ii only.
Initiate with BUY: We initiate coverage on Swiggy with 12-mth DCFbased TP of Rs535, implying 6.3x/5.0x on FY26ii/27ii EV/Sales. The stock is trading at 4.1x FY26ii EV/Sales, offering 28% revenue Cagr over FY25- 28ii, vs. Eternal and the Indian internet peers at 7.2x/6.5x EV/Sales, with 34%/22% revenue Cagr. Key risks: Competition, regulations.