Swiggy vs Zomato: Which food delivery stock should you buy for the long term? Here’s the 5-point analysis

Swiggy vs Zomato: After delaying its public offering, food delivery company Swiggy made a strong stock market debut, beating analysts’ estimates. D-Street experts say the new-age tech stock, similar to its rival Zomato, which is now a multibagger stock, is poised for a strong performance in the stock market.

Following an intense competitive period (FY15-18), during which several food delivery offerings (Zomato, Swiggy, Faasos, Foodpanda, Uber Eats) attempted to survive; The Indian online food delivery market has effectively settled into a comfortable monopoly as most were either bought out or closed shop.

In food delivery, players have established themselves in a comfortable monopoly. The difference in scale (Zomato is 30 per cent larger than Swiggy) can be largely explained by MTU and city presence. Swiggy has lost its lead in FY 2012-24 in terms of market share as well as efficiency. However, on most KPIs it seems to be ~4-6 quarters off.

Despite the smaller scale, domestic brokerage HDFC Securities still expects Swiggy to lag Zomato by 150-200 bps in GO growth (FY24-27) as within key inputs, both are expected to be evenly matched on MTU and AOV. There’s a possibility, but not necessarily, that Swiggy has a lot of wiggle room on order frequency. Swiggy achieved EBITDAM breakeven in Q1FY25, however, it needs to hold on to platform funded-discounts and fixed cost absorption.

Swiggy is a new-age, consumer-first technology company that enables users to browse, select, order and pay for food (food delivery), groceries and household items (via Instamart) in an easy-to-use Provides a convenient, integrated app platform. Orders are delivered to doorstep through their on-demand delivery partner network. It also offers restaurant reservations (through Dineout) and event booking (through Steppinout). Other offerings include product pick-up/drop-off services (through Genie) and other hyperlocal activities (through Swiggy Mini, among others). Being one of the first hyperlocal commerce platforms, Swiggy has successfully led the industry in India by launching food delivery in 2014 and quick commerce in 2020.

Zomato is an e-commerce company and a leading online food delivery and restaurant discovery platform in India. Some of the major services provided by the company are:

• Zomato’s platform facilitates convenient online food ordering, user-generated reviews and ratings, and offers extensive restaurant menus, enabling customers to make informed decisions and enhancing their overall dining experience.

• The HyperPure business provides a direct and reliable supply chain solution, connecting farmers to restaurants by providing them with the high-quality, fresh raw ingredients needed for their operations.

• Zomato has launched the Zomato Gold membership program, which offers exclusive benefits such as discounts and complimentary dishes at partner restaurants, adding value and elevated experiences to its customers.

• In 2024, Zomato acquired Grofers and rebranded it as Blink-It. Blink-It works as an instant-commerce service provider, delivering groceries, fresh meat, bakery items, personal care products, baby care items, pet care products, snacks and more within 10 minutes. Provides quick delivery.

Zomato has established itself as the leading player in India’s food delivery industry, achieving a market share of 56 per cent-57 per cent in online food orders in FY24, while Swiggy, a key competitor, has 40 per cent. Market share. Other restaurant chains collectively have a relatively small market share of five percent.

According to domestic brokerage Axis Securities, like any emerging sector the food tech platform business has also seen its share of growth and consolidation. The industry started with individual players focusing on specific areas, be it restaurant advertising/listings, food delivery, grocery delivery, etc.

Over time, it has seen exits and consolidations, emergence of new categories, leading to the current situation where there are two major players – Zomato and Swiggy – which now compete in restaurant listings/advertising, food delivery and instant commerce. The players now create a monopoly through a strong moat of extensive network effects on their platforms with 64 million and 53 million annual transacting users, respectively, as well as 2,00,000 restaurants and 3,20,000 delivery partners on each platform.

Zomato has been competing with Swiggy since its formation and has maintained and gained market share due to its superior execution capabilities. Both platforms also have instant-commerce businesses, with Swiggy having built it in-house, while Zomato has acquired Grofers and scaled it up. Zomato’s execution appears to be better than Swiggy, as evidenced by its market share increase and Swiggy becoming the largest player in both segments despite its early advantage.

–1. food delivery business

Swiggy lags behind Zomato by four to six quarters on KPI in food delivery. Zomato overtakes Swiggy in terms of performance in FY22-24; But Swiggy may be off by 4-6 quarters on most KPIs: After aggressive expansion (in presence) of its food delivery operations in FY22 (from 455 to 1,000+ cities), FY22-24 has seen a surge in driving efficiency for Zomato. Marked phase in which (1) operations were withdrawn from low user-density cities), (2) restaurants, delivery partners, order density and ATU-toMTU conversions were improved, and (3) as a result, monthly order frequency (MOF) and AOV were improved.

In food delivery, HDFC Securities suspects, in FY24-27, Swiggy will likely follow the Zomato playbook and focus on efficiency. If Q1FY25 performance is looked at, Swiggy has already managed to make meaningful improvement in fixed cost absorption (fixed costs have reduced to 5.6% of GoV vs Zomato’s 3.9% in Q1FY25 vs GoV’s 6% in Q1FY24 ). However, Swiggy seems to have stepped up to the growth pedal to achieve this, while Zomato managed to achieve efficiency while growing rapidly. Note: Swiggy FD GOV grew by only 14% in Q1FY25 compared to Zomato’s 27%.

On GoV growth in FY24-27, despite the smaller scale, we still expect Swiggy to lag Zomato by 150-200bps, as within the key inputs, both are likely to be evenly matched on MTU and AoV. However, we do not see scope for improvement in order frequency for Swiggy (unlike Zomato, which has scope to catch up).

–2. quick commerce business

While Swiggy was one of the first to venture into instant commerce with its erstwhile 30-45 minute delivery model, it has lost considerable market share to the other two (Blinkit and Zepto) since FY2012.

While Swiggy and Zepto have been organically building their QC verticals, Zomato benefited from the Grofers (Blinkit now) acquisition in FY2013 because (1) Blinkit in its earlier incarnation was a stocked-up online grocer (higher AOV) and (2) had peak Blinkit concentration in the Delhi-NCR region (~43% of GoV in Q4FY24; now 40%) Ensured high GoV/day per store initially.

HDFC Securities values ​​Swiggy on an SOTP basis and assigns (1) 38x FY27 EV/EBITDA to the mature food delivery business, (2) 1.2x FY27 EV/GOV to the fast-growing instant commerce segment, (3) 0.5x FY27 GOV Does it. for the OOH consumption segment and (4) 1x FY27 sales each for the supply chain and distribution and platform innovation verticals. This translates to 4x FY27 sales for consolidated operations

Axis Securities initiated coverage on Zomato with BUY rating. “We expect Zomato to strengthen its presence in the food-delivery market and gain market share by continuously adopting new technology and bringing new innovations to the food-delivery business. This will keep more users coming to the platform. In this backdrop, we initiate coverage on the stock with a Buy rating and value the company on SOTP valuation to arrive at the target price. 280/share,” the brokerage said.