Swiggy and Zomato: What should be your strategy for these two new age tech stocks?

Swiggy and Zomato: The focus on food delivery companies has intensified in the last few weeks swiggy Making its debut in the Indian stock market. with zomato As its only competitor, investors are beginning to evaluate both businesses to determine which presents a better investment opportunity.

A recent report from JM Financial indicates that India’s online food delivery market is projected to grow at a strong CAGR of around 20% in the near future, but the likelihood of new competition disrupting the market seems minimal at the moment. The main reason for this is that quick commerce (QC) represents a more attractive opportunity than food delivery. It is anticipated that food-tech companies will likely prioritize their own QC initiatives, given that significant differences in food distribution are not expected. This dynamic should lead to steady growth in gross order value (GOV) (CAGR of 18-22%) and a gradual shift towards sustainable profitability (4-5% of GOV) for both established players.

“Although on an absolute basis Swiggy offers good margins, we would prefer Zomato if we were asked to choose only one due to its better execution in the past and market leadership in key areas. However, we suggest investors play both (preferably with a higher weighting to Zomato), as in any case both are likely to be among the fastest growing consumption names and hence, outperform broader market returns. Can,” JM Financial said in its report.

Nevertheless, market analysts highlight several key factors to consider that provide a clear understanding of each business and help gain perspective beyond the competitive landscape.

Share price in focus

swiggy share price

Swiggy’s share price opened on Wednesday, 13 November The stock is priced at Rs 420 per share on NSE, which is 7.69% higher than its issue price. At the same time, Swiggy’s share price started at Rs 390 on BSE. 412 each, rising by 5.64% compared to the issue price.

According to the Stock Edge app, Swiggy’s delivery level stood at 49.9% at the end of November 13, while it dropped to 22.1% on Thursday, November 14. Market analysts pointed out that the volume of deliveries decreased compared to the volume on the day of listing, and both in total volume and percentage, leading to a decline in the stock price. This shows that the influence of the gray market was evident yesterday, with some vested interests trying to maintain high prices on the opening day. However, there was a lack of interest as the opening day impact faded on Thursday.

The Zomato share price, which debuted on Friday, July 23, 2021, has seen a rise of 132% since the start of trading. According to Trendline data, the stock price has climbed 122.37% and outperformed its sector by 81.77% over the past year.

A Factor to Consider Beyond Competition

Mohit Gulati, CIO and Managing Partner, ITI Growth Opportunities Fund, said that it is challenging to choose between Zomato and Swiggy as the competition between them is very close. From a pure discount perspective, Swiggy clearly stands out. However, when it comes to operational efficiency and profitability, Zomato is the clear leader.

“My concerns about delivery space go beyond this rivalry. “Intense competition from well-funded players like Zepto, Tata BigBasket, Flipkart and eventually Amazon and Reliance could put significant pressure on the already thin margins for both Swiggy and Zomato,” Gulati said.

Additionally, while instant commerce (Q.Com) has become a service we all enjoy, it is negatively impacting the livelihoods of approximately 2.4 crore Indian households employed in grocery stores, which means approximately 10 crore Indians Now must find a way to survive. This is fierce competition. Any strict regulations against accelerated commerce could drastically change the dynamics of the industry for everyone involved.

Zomato is well positioned to gain profits

Arun Kejriwal, founder of Kejriwal Research and Investment Services, favors Zomato over Swiggy based on facts collected by Kejriwal as he differentiates between the two.

In short, Zomato is in a profitable position, given that its business model is quite flexible and it has been making profits for a few consecutive quarters. Recently, it was announced that Zomato will enter the futures and options market from November 27. With its entry into F&O, investors can hold their positions on the stock without paying the entire cash amount upfront. Additionally, there is speculation that it may be included in the Nifty 50 during the index rebalancing in February. Irrespective of whether it gets added to Nifty 50 or not, this topic will come up again and again till February, acting as a favorable catalyst. These elements highlight the positive outlook for Zomato.

The downside for Swiggy is that one segment of its business, dine-out service, is not profitable and is actually running at a loss, which could put pressure on the company’s overall operations. Since there is no separate revenue source from this sector, they can take limited action; Users must be members of the app to use the service, and revenue is generated through subscriptions paid by users and advertising revenue from participating hotels. This situation appears to be a lose-lose deal, and there doesn’t seem to be much the company can do to improve it.

Growth catalysts are the same for both

Comparing Swiggy to Zomato, Prashant Tapse, senior vice president of research at Mehta Equities, indicated that he plans to invest 70% of his funds in Swiggy as the capital raised from the new IPO will improve its operating performance. Can. He handed over a 30% stake to Zomato, acknowledging that it has already demonstrated its capabilities and is leading the industry in growth. By choosing to invest in both companies, he intends to take advantage of the sector’s breadth rather than limiting himself to a single investment. Both companies target the same market, which means their growth catalysts are also similar.

Disclaimer: The above views and recommendations are those of individual analysts, experts and broking companies, and not of Mint. We recommend investors to check with certified experts before taking any investment decision.