Zomato ahead in battle with Swiggy, brokerages maintain ‘buy’

Brokerages have reaffirmed their positive stance on Zomato following the annual numbers posted by Prosus, which holds a 33 percent stake in Swiggy.

Prosus, an arm of South Africa’s Naspers, reported that Swiggy’s core food delivery business’ gross merchandise value (GMV) reached $2.6 billion, representing a growth of approximately 26 percent year-on-year (YoY), even as growth in food delivery orders was 30 percent. This decline in the average order value or the take rates was a trend not seen in the case of Zomato. The Swiggy rival reported a food delivery GMV of $3.2 billion for the calendar year 2022, up an identical 26 percent YoY.

According to Kotak Institutional Equities, this data suggests a GMV share of 55:45 in favour of Zomato, reflecting strong execution and customer stickiness, despite discount schemes having been reduced on the platform. It has retained its “buy” rating on Zomato at a fair value of Rs 95.

Prosus’ results also indicate that Swiggy’s food delivery business GMV experienced a sequential growth of 5 percent in the second half of the calendar year 2022, which was slower than the 8 percent growth reported by Zomato.

Swiggy also reported wider losses of $545 million for CY2022, up 80 percent YoY. JM Financial believes that the losses were driven primarily by peak investments in Instamart, its quick commerce business.

Commenting on the results, the brokerage firm said, “Prosus’ results suggest the tug of war between Zomato and Swiggy continues, with both incumbents working hard to hold on to their respective market shares in the food delivery business.” It has reiterated its “buy” rating on Zomato with a target price of Rs 105 on the back of its strong market leadership within the food aggregators’ space, improvement in profitability trends and superior execution performance compared to Swiggy.

Citibank also supports this view with a “buy” rating at a target price of Rs 84, confirming an industry-wide aggressive push towards profitability with Zomato leading over Swiggy.

JM Financial believes that India’s online food delivery market is far from turning into an absolute monopoly (as in the case of Meituan in mainland China) since both incumbents have prioritised profitability improvement over market share gains.

In the absence of any new material competition emerging, analysts expect both the aggregators to grow 1.2x-1.5x relative to the underlying organised food services industry.

The share closed at Rs 74.95 on the National Stock Exchange, up 0.13 percent from the previous day.

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