Eternal, Swiggy: Nirmal Bang initiates coverage on QC stocks; see up to 30% upside

Nirmal Bang has inititaied is coverage on Swiggy and Eternal with positive outlook as both the key players in the Indian food delivery market, highlighting their leadership positions and forecasting substantial growth. The analysis projects the Indian food delivery market to expand at a compound annual growth rate (CAGR) of 17–22% from 2023 to 2028, positioning Swiggy and Eternal as leaders.

Swiggy has made significant strides in narrowing its food delivery margin gap with competitor Zomato. From over 140 basis points in Q2FY24, it reduced this difference to approximately 81 basis points by Q4FY25. Swiggy's revenue is expected to reach Rs 88.5 billion by FY27E, driven by an 18% CAGR in gross order value (GOV) over FY25–FY27E.

Eternal, on the other hand, has maintained its leadership with a FY25 GOV of Rs 386.46 billion, which is 34% higher than Swiggy’s. This success is credited to a robust three-year CAGR of 22%. Eternal's FY25 adjusted EBITDA stood at Rs 1,505 crore, reflecting stronger monetization and cost efficiency. The company expects its food delivery adjusted EBITDA as a percentage of GOV to expand to 5.1% by FY27E.

In quick commerce, Eternal's Blinkit emerges as a leader with nearly twice the GOV of Swiggy's Instamart in FY25, and an average order value (AOV) of Rs 667 versus Rs 514 for Instamart. Blinkit’s GOV is anticipated to clock a 72% CAGR over FY25–FY27E, led by strong growth in order volumes.

Swiggy is still catching up in the quick commerce segment but has been active in investments, adding 412 new dark stores during Q3 and Q4 FY25, which is expected to enhance throughput and utilisation, potentially turning contribution margins positive by FY27E.

The valuation for Swiggy’s food delivery business is set at par with Zomato's at 42 times EV/Ebitda on FY27E metrics. In contrast, due to competitive intensity and subsidies, a 50% discount is applied to Instamart’s valuation compared to Blinkit, which is valued at 2 times EV/GOV.

Nirmal Bang also highlights vulnerabilities that Swiggy faces due to rising competition and aggressive expansion by other players, which could delay its path to profitability. However, Swiggy is expected to exceed a 1.5% adjusted EBITDA as a percentage of GOV by FY27E, supported by growing ad revenues.

In assessing the future, Nirmal Bang notes that the sheer lead in size and scale allows Eternal's Blinkit to be valued at a multiple double that of Instamart. The continuing investment in Hyperpure and the going-out business segments are valued on EV/GOV and EV/Sales on FY27E, deriving a fair value for these businesses.

Overall, the analysis provides a comprehensive evaluation of both companies’ positions in the market, with Eternal showing stronger execution and leadership in quick commerce, while Swiggy is noted for its potential in improving KPIs and narrowing valuation gaps.

The ongoing developments and strategic investments by Swiggy and Eternal are expected to bolster their market presence and profitability in the coming years. The report provides a fair value of Rs 500 per share for Swiggy and Rs 315 per share for Eternal based on the FY27E SOTP valuation. Nirmal Bang has a 'buy' rating on both the stocks, suggesting up to 31 per cent upside in them.

Nirmal Bang remains optimistic about the long-term potential of the food delivery industry in India, driven by increasing order frequency, better customer retention, and expanded penetration into Tier 2+ cities. The conclusion from the analysis is that both Swiggy and Eternal are well-positioned to capitalise on their existing strengths and market opportunities.

This positions them favourably in a growing market projected for substantial expansion, where they continue to demonstrate significant leadership and market influence, despite the challenges they face from emerging competitors.