Swiggy vs Zomato: After a decent initial public offering (IPO), Softbank-backed food delivery giant Swiggy delivered a powerful stock market debut, beating analysts' estimates. According to D-Street experts, the new-age stock is poised for a strong run, similar to its rival Zomato, now a multi-bagger stock that commands double the market cap since its listing in July 2021.
Like any emerging segment, the food tech platform business has seen its share of evolution and consolidation. The industry started with different players focusing on specific verticals, such as restaurant advertising/listing, food delivery, and grocery delivery.
Also Read: Swiggy shares list at ₹420 on NSE, opening 7.7% above IPO price in a highly anticipated debut
Over the last few years, the sector saw exits and consolidation, and the emergence of new categories. The current state is where two dominant players—Zomato and Swiggy—compete across restaurant listing/advertising, food delivery, and quick commerce.
The players now form a duopoly through a strong moat of expansive network effect on their platforms, with 64 million and 53 million annual transacting users, 2,00,000 restaurants, and 3,20,000 delivery partners on each platform. Zomato has been competing with Swiggy since its formation and has gained market share because of its better execution capabilities.
Both platforms also have quick-commerce businesses, with Swiggy building it in-house while Zomato acquired Grofers and pivoted it. According to Axis Securities, Zomato’s execution appears to be better than Swiggy’s, as reflected in its market share gains and becoming the largest player across both segments despite Swiggy’s early-mover advantage.
After an intense competitive period (FY15-18) during which multiple food delivery offerings (Zomato, Swiggy, Faasos, Foodpanda, Uber Eats) contended to stay afloat, the Indian online food delivery market has effectively settled into a comfortable duopoly as most were either bought out or shut shop.
In food delivery, players have settled into a cosy duopoly. The difference in terms of scale, with Zomato being 30 per cent bigger than Swiggy, can be explained largely by the monthly transacting users (MTU) and city presence. Within key inputs, both are likely to be evenly matched on MTUs and average order values (AoVs). Swiggy hit EBITDA breakeven in Q1FY25; however, it must catch up on platform-funded discounts and fixed cost absorption.
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Swiggy is a new-age, consumer-first technology company offering users an easy-to-use, convenient, unified app platform to browse, select, order, and pay for food, groceries, and household items (via Instamart), with orders delivered to doorsteps through their on-demand delivery partner network. It also offers restaurant reservations (via Dineout) and event bookings (via SteppinOut).
Other offerings include product pick-up/drop-off services (via Genie) and other hyperlocal activities (via Swiggy minis, among others). Swiggy is among the first hyperlocal commerce platforms and has successfully pioneered the industry in India, launching food delivery in 2014 and quick commerce in 2020.
Also Read: Swiggy vs Zomato: Should you apply for Swiggy IPO or buy rival Zomato shares? Analysts weigh in
FoodieBay, later rebranded as Zomato, was established in 2008 by founders Deepinder Goyal and Pankaj Chaddah. Initially launched as a website, the company underwent a name change to Zomato in 2010. Zomato is an e-commerce company and India's leading online food delivery and restaurant discovery platform. Some of the key services provided by the company are:
• Zomato's platform facilitates convenient online food ordering, user-generated reviews and ratings, and provides extensive restaurant menus, enabling customers to make informed decisions and enhance their overall dining experience.
• Hyperpure business offers a direct and reliable supply chain solution, connecting farmers with restaurants by providing high-quality, fresh raw materials necessary for their operations.
• Zomato has introduced the Zomato Gold membership program, offering exclusive benefits such as discounts and complimentary dishes at partnered restaurants, adding value and enhanced experiences for its subscribers.
• In 2024, Zomato acquired Grofers and rebranded it as Blink-It. Blink-It operates as a quick-commerce service provider, offering rapid delivery of groceries, fresh produce meat, bakery items, personal care products, baby care items, pet care products, snacks and more within 10 minutes.
Zomato has established itself as the leading player in India's food delivery industry, capturing a market share of 56 per cent-57 per cent in online food orders in FY24. At the same time, Swiggy, a key competitor, holds a market share of 40 per cent. Other restaurant chains collectively possess a relatively smaller market share of five per cent.
Also Read: Zomato launches NEW ‘District’ app: Book movies, dining, events seamlessly on iOS, Android
According to Axis Securities, acquiring the Uber Eats app eliminated a major competitor and allowed Zomato to emerge as the leading food tech company, overtaking Swiggy. Here are the five key indicators to compare Swiggy and Zomato and which food delivery one should buy for long-term:
Over FY22- H2FY25, all food delivery key performance indicators (KPIs) improved (avg, MTUs, ordering frequencies and AoVs) for both platforms (Swiggy and Zomato). However, Zomato did better (potentially given public market expectations). Swiggy lost its lead over FY22-24 in terms of market share and efficiency.
However, it seems ~4-6 quarters away on most KPIs. Despite the smaller scale, HDFC Securities expects Swiggy to lag Zomato by 150-200 bps on GOV growth (FY24-27). Within key inputs, both are likely to be evenly matched on MTUs and AoVs, but there is little room for Swiggy's ordering frequency. However, it does not see room to improve Swiggy's frequency (unlike Zomato, which has room to catch up).
Over FY22-24, Zomato has caught on and outdone Swiggy regarding most KPIs. This has led to better fixed-cost absorption and lower platform-funded discounts for the leader vs Swiggy. Swiggy’s food delivery take rate was ~40bps higher than Zomato in FY24 (~100 bps higher in Q1FY25), which partially makes up for the higher discounts Swiggy offers.
The brokerage suspects that in food delivery, over FY24-27, Swiggy will likely follow the Zomato playbook and focus on efficiency. If Q1FY25 performance is anything to go by, Swiggy has already managed to improve fixed cost absorption meaningfully (fixed costs down to 5.6 per cent of GoV vs. Zomato’s 3.9 per cent in Q1FY25 vs six per cent of GoV in Q1FY24). However, it seems Swiggy has stepped off the growth pedal to achieve this, whereas Zomato managed to achieve efficiency whilst growing at a fast clip.
While Swiggy was among the first to venture into quick commerce with its erstwhile 30-45 min delivery model, it has lost considerable market share to the other two (Blinkit and Zepto) from FY22 until now. While Swiggy and Zepto have been organically building their quick commerce vertical, Zomato benefitted from the Grofers (Blinkit now) acquisition in FY23.
Blinkit, in its earlier avatar, was a stock-up online grocer (high AoVs), and the extreme concentration (~43 per cent of GoV in Q4FY24; 40 per cent now) of Blinkit in the Delhi-NCR region ensured a higher GoV/day per store to begin with. In quick commerce, At the current scale, Swiggy needs ~2,000 orders per day/store (1,135 now) to hit EBITDAM-breakeven, and Zomato is nearly there at ~1,500 orders per day/store.
A snapshot of peer valuation between the financial metrics of Swiggy and Zomato:
Zomato shares have given decent returns since its listing. Zomato stock price is down four per cent in one month but has rallied 40.5 per cent in the past six months. Zomato shares have jumped 96 per cent year-to-date (YTD) and have given multibagger returns of 109 per cent in one year and over 285 per cent in two years.
Swiggy commands a market cap of ₹96,219.66 crore, while the stock last settled 5.72 per cent lower at ₹429.85 apiece on the BSE. On Thursday, Swiggy shares jumped as much as 7.3 per cent intraday to a fresh high of ₹489.25 apiece on the BSE, with its market cap briefly crossing the ₹1 lakh-crore mark. The stock rose more than 25 per cent from its issue price.
HDFC Securities on Swiggy: While the duopoly structure in food delivery is likely to ensure eventual convergence of fortunes with the leader, the brokerage says the jury is still out on convergence in quick commerce.
“We project a 26 per cent sales CAGR, with adj. EBITDA improved significantly (from -15 per cent to 2.5 per cent), and RoCEs rose from -25 per cent to one per cent over FY24-27. We initiate coverage on Swiggy with an ADD rating and a SOTP-based target price (TP) of ₹430/share (implying 4x FY27 sales),” said the brokerage.
According to Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, Swiggy's listing surprised the market participants. Positive listing and price holding above its issue price of 390 should be seen as strong demand for the company.
“This shows investors are positive on the space, and the fear of missing out is holding investors back from missing the sector growth story, similar to ZOMATO's post-leasing trend,” said Tapse.
Tapse suggests HOLD FOR LONG TERM for allotted investors despite knowing the sector's short-term volatility and competitive pressures. “For non-allottees, we advise waiting and watching for the price to settle and revisiting to buy near issue price if we get due to market selloff pressure,” he said.
Axis Securities on Zomato: “We initiate coverage on Zomato with a BUY recommendation based on a SOTP valuation, arriving at a Target Price of Ra 280/share. We are confident that Zomato's expansion in the food delivery and Blinkit sectors is bolstered by consistent improvements in profitability and a significant reduction in losses within the hyperpure and quick commerce domains. Moving forward, these attributes are expected to result in higher volume and revenue growth,” said the brokerage on Zomato.
According to Karan Taurani, Senior Vice President and Research Analyst (Media, Consumer Discretionary & Internet) at brokerage Elara Capital, Zomato's management maintained that throughput per store is healthy despite the expansion.
"New stores can move to 70 per cent of the average throughput in Blinkit’s portfolio in just three months, which shows the potential for healthy growth. Blinkit at the break-even point is a big edge versus peers, which will help Zomato expand rapidly and gain market share versus peers while maintaining profitability," said Taurani.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
