Eternal, Swiggy hike platform fee; which stock should one buy?

IIFL Securities has retained its 'Buy' recommendation on Eternal (Zomato) and 'Add' rating on Swiggy following the hike the platform fee the online food aggregator charge on their food delivery orders by Rs2/2.5 per order against the previous quarter. For Zomato, it has gone up from Rs 10 per order (ex-GST) to Rs 12, and for Swiggy, from
Rs 12 per order (including GST) to Rs 14.99. 

IIFL Securities estimated that for every Re 1 increase in platform fee, food delivery adjusted Ebitda for FY27ii/28ii increases 4-4.5 per cent for both the companies, assuming no impact on order volumes. Swiggy, it said, has higher sensitivity at the PAT level given its lower profitability against Eternal. 

"We already assume 4-5 per cent annual increase in fee recovered from customers (delivery + platform) over the long term; higher growth poses upside risk to our revenue per order and PAT estimates. We maintain BUY on Swiggy and ADD on Eternal on disproportionate valuation differential in their QC business," IIFL Securities said.

The domestic brokerage suggested a target of Rs 535 on Swiggy and Rs 275 on Eternal.

Meanwhile the brokerage took note of Rapido's launch in Bengaluru. The ride hailing platform –recently launched its food delivery app Ownly in Bengaluru. It runs on a near-zero-commission model but instead charges a flat delivery fee. 

IIFL Secuirties compared the cart value payable by customers across several restaurants to assess the price differential among Ownly, Zomato and Swiggy. Its analysis suggested that in certain restaurants, more specifically the standalone ones, the list price of dishes is up to 40 per cent lower on Ownly against Zomato/Swiggy. Further, Ownly is charging a flat Rs 20 delivery fee per order, which is currently waived off. 

"This compares with Zomato/Swiggy, which have restaurant packaging charges in many cases and platform fee but do not charge delivery fee to Gold/One customers. However, in many instances, these platforms offer coupons, which results in a lower total cart value payable by the customer," IIFL Securities said.

The broking firm believes that Ownly’s zero commission and/or lower delivery fee structure is difficult to scale up without significant burn and may not achieve profitable unit economics and hence, should not pose potent threat to the two incumbents.